The Influence of Emotions on Strategic Decision

The Influence of Emotions on Strategic Decision-Making and Issue
Interpretation in the Energy Industry
DISSERTATION
of the University of St.Gallen,
School of Management,
Economics, Law, Social Sciences
and International Affairs
to obtain the title of
Doctor of Philosophy in Management
submitted by
Elmar Konstantin Friedrich
from
Germany
Approved on the application of
Prof. Dr. Rolf Wüstenhagen
and
Prof. Dr. Markus Kreutzer
Dissertation no. 4268
Difo-Druck GmbH, Bamberg, 2014
The University of St.Gallen, School of Management, Economics, Law, Social
Sciences and International Affairs hereby consents to the printing of the present
dissertation, without hereby expressing any opinion on the views herein expressed.
St. Gallen, 19th of May, 2014
The President:
Prof. Dr. Thomas Bieger
[B]ooks can also provoke emotions. And emotions sometimes are even more
troublesome than ideas. Emotions have led people to do all sorts of things they later
regret - like, oh, throwing a book at someone else.
– Pseudonymous Bosch, 2013
Acknowledgements
The voyage to writing this dissertation has been an extraordinary one in many ways. I
would have not reached my destination without the help and guidance of some
remarkable companions that I would like to acknowledge here: Foremost I want to
thank my PhD supervisor Rolf Wüstenhagen, not only for his continuous support and
guidance through the labyrinth of academia, but for leading by example. To walk
beside him and my fellow colleagues at the Institute for Economy and the
Environment at the University of St.Gallen has always been inspiring, truthful, and
fun, and I am grateful for the time I could spend with them. I also want to thank my
co-supervisor Markus Kreutzer for providing some valuable feedback on the
conceptual development of this work. An academic journey such as this one takes
great resources and would have not been possible without the support of the
Nagelschneider Foundation, who genuinely financed this project for three years. A
special thanks also belongs to Jürgen Brücker and the entire CEMS team at the
University St.Gallen, who allowed me to have a job that I could truly belief in and
work in an atmosphere that is based on kindness, respect, and joy. I would also like to
thank my co-author Sally Russell at the University of Leeds for allowing me to
contribute to her book chapter on emotions and at times for leading me back on track
when I was getting lost in the divergence of theories. This journey led me to many
foreign shores and I would like to thank Betina Szkudlarek, Christopher Wright, John
Shields, Kristina Dery, and Lance Graham at the University of Sydney Business
School for inviting me as visiting scholar for one year. I will always be thankful for
their hospitality and support during this extraordinary time. For the third paper I would
like to acknowledge the support of Johannes Vochem, who gathered the data for the
study as part of his master thesis.
St. Gallen, May 2014
Elmar Friedrich
Table of Contents
I
Table of Contents
Table of Contents ........................................................................................................................ I
List of Figures .......................................................................................................................... IV
List of Tables ............................................................................................................................. V
Abstract .................................................................................................................................... VI
Zusammenfassung .................................................................................................................. VII
Introduction .............................................................................................................................. 1
Background and Problem Statement ...................................................................................... 1
Objectives and Research Questions ....................................................................................... 3
Theoretical Foundation .......................................................................................................... 8
Emotions and Strategic Decision-Making............................................................................ 10
Research Framework ............................................................................................................ 12
Methodology ........................................................................................................................ 14
Overall Findings and Implications ....................................................................................... 15
Overall Limitations and Suggestions for Further Research ................................................. 19
References ............................................................................................................................ 22
First Paper .............................................................................................................................. 27
Abstract ................................................................................................................................ 27
Introduction .......................................................................................................................... 28
Defining Emotion ................................................................................................................. 29
Level 1: Within-Person Emotions ........................................................................................ 30
Level 2: Emotions Between Persons .................................................................................... 31
Level 3: Interpersonal Interactions and Emotions................................................................ 34
Level 4: Group Level Emotions ........................................................................................... 36
Level 5: Organization-Wide Emotions ................................................................................ 38
Cross-Level Emotions .......................................................................................................... 41
Discussion and Further Research ......................................................................................... 42
A Future Research Agenda .............................................................................................. 42
Implications for Research................................................................................................. 43
Implications for Practice .................................................................................................. 45
II
Table of Contents
Conclusion ............................................................................................................................ 46
References ............................................................................................................................ 47
Second Paper .......................................................................................................................... 54
Abstract ................................................................................................................................ 54
Introduction .......................................................................................................................... 55
Literature Review: Emotions, Management and Sustainability ........................................... 57
Sustainability, Cognition and Decision-Making .............................................................. 57
Emotions and Change....................................................................................................... 60
Conceptual Framework: Five Stages of Grief ...................................................................... 61
Illustrative Case: German Energy Companies confronted with Nuclear Phase-Out ........... 65
Denial ............................................................................................................................... 67
Anger ................................................................................................................................ 67
Bargaining ........................................................................................................................ 68
Depression ........................................................................................................................ 68
Acceptance ....................................................................................................................... 69
Discussion, Implications and Further Research ................................................................... 70
Conclusion ............................................................................................................................ 74
References ............................................................................................................................ 75
Third Paper ............................................................................................................................. 85
Abstract ................................................................................................................................ 85
Introduction .......................................................................................................................... 86
Methodology ........................................................................................................................ 88
Results .................................................................................................................................. 90
E.ON ................................................................................................................................. 91
RWE ................................................................................................................................. 94
Endesa .............................................................................................................................. 96
Iberdrola ........................................................................................................................... 97
Discussion ............................................................................................................................ 99
Negative or Positive Emotional Associations ................................................................ 102
Gain and Loss Considerations ........................................................................................ 102
Perceived Controllability................................................................................................ 103
Table of Contents
III
Limitations ..................................................................................................................... 104
Conclusion and Policy Implications ................................................................................... 104
Acknowledgements ............................................................................................................ 107
References .......................................................................................................................... 109
Curriculum Vitae ................................................................................................................. 114
IV
List of Figures
List of Figures
Figure 1: Research framework in the context of strategic issue interpretation ........................ 13
Figure 2: Hypothesized effect of emotions on managerial perception of an organization’s
position in its market and the ability to change the organization through the five stages of
grief .......................................................................................................................................... 63
Figure 3: Stock price reactions to the Fukushima Daichi nuclear accident ............................. 66
Figure 4: Market shares in electricity production in Germany and Spain in 2009. ................. 89
Figure 5: Installed capacities in new renewable energies of four case companies .................. 90
Figure 6: Average number of keywords per 100 pages of corporate report ............................ 91
Figure 7: Factors influencing the perception of a policy as threat or opportunity ................. 101
List of Tables
V
List of Tables
Table 1: Overview of research papers that make up this doctoral thesis ................................... 5
Table 2: Overview of most relevant studies ............................................................................... 8
Table 3: Summary of the four case companies in 2013 in income, employees, electricity
generation, total installed capacity, and total installed wind capacity ..................................... 87
VI
Abstract
Abstract
The rising awareness of the importance of climate change prevention and the
preservation of the natural environment has led to changing social norms and political
actions. The resulting changes in consumer preferences and new policies redefine the
institutional landscape organizations operate in. Organizations respond to such
sustainability-driven changes very differently, a phenomenon that gained attention by
scholars in recent years. Yet, management research often focused on the rational
nature of human agency and overlooked the influence of emotions. The objective of
this dissertation is to research the effect of emotions on managerial risk perception and
decision-making during times of upheaval in the organizational field1 using the
example of major energy utilities’ responses to new energy policies. The dissertation is
segmented into three studies that build upon another and address the following
research questions: 1) What is the current academic discourse in the management
literature on emotions?; 2) How do negative emotions over change affect the
perception of senior executives of their organization and their ability to change it
during upheaval in the organizational field?; 3) Which factors influence the strategic
decision-making in major energy utilities in response to energy policy changes? The
first study reviews the current literature on emotions in a sustainability-related context.
The second paper is a theoretical contribution that draws on the stages theory of grief
from the psychologist Küber-Ross and applies it on top management perception. The
third study reviews the strategic responses of energy utilities to new energy policies
and discusses factors influencing the strategic decision-making of organizational
leaders in the energy industry. Researching the role of emotions during the change
process of the German energy industry enhances our understanding of the effect of
emotions on strategic decision-making and the interplay of emotions and risk
perception along the evolution of new institutions, which has important implications
for policymakers, practitioners from the energy industry and researchers.
Keywords: Renewable energies, emotions, stages theory of grief, strategic change,
energy utilities, risk perception, content analysis
1
“Organizational field” refers to the definition of Wooten and Hoffman (2008).
Zusammenfassung
VII
Zusammenfassung
Das zunehmende Interesse an und die steigende Bedeutung von Klimawandel und
Umweltschutz waren Auslöser sowohl sozialer Veränderungen als auch politischer
Maßnahmen. Die daraus resultierenden Veränderungen im Verbraucherverhalten und
neue Richtlinien verändern die institutionellen Rahmenbedingungen für
Organisationen. Organisationen reagieren auf solche nachhaltigkeitsorientierten
Veränderungen sehr unterschiedlich - ein Phänomen, das in den letzten Jahrzehnten
viel wissenschaftliche Aufmerksamkeit gewonnen hat. Die Forschung konzentrierte
sich schwerpunktmäßig auf die Aspekte rationalen Verhaltens bei der Untersuchung
der Ursachen von Unternehmensentscheidungen und ließ dabei emotionale Aspekte
oftmals außen vor. Das Ziel dieser Dissertation ist die Untersuchung der
Auswirkungen von Emotionen auf die Risikowahrnehmung der Unternehmensführung
und auf ihr Entscheidungsverhalten in Zeiten des institutionellen Wandels, welche
anhand der Reaktionen führender Energieunternehmen auf Veränderungen in der
Energiepolitik untersucht werden. Die Dissertation ist in drei aufeinander aufbauende
Studien eingeteilt, welche die folgenden Forschungsfragen adressieren: 1) Wie ist der
aktuelle Forschungsstand zu Emotionen in der Management-Literatur?; 2) Wie
beeinflussen negative Emotionen von Veränderung die Wahrnehmung des
Managements von ihrer Organisation sowie ihre Fähigkeit, das Unternehmen an
Veränderungen anzupassen?; 3) Welche Faktoren beeinflussen das strategische
Entscheidungsverhalten führender Energieunternehmen als Reaktion auf Änderungen
in der Energiepolitik? Die erste Studie analysiert den aktuellen Stand der Literatur
zum Thema Emotionen in der Nachhaltigkeitsforschung. Die zweite Arbeit ist ein
theoretischer Beitrag, der die Fünf Phasen des Sterbens der Psychologin Kübler-Ross
auf das Verhalten von Topmanagern in Zeiten des Wandels im organisatorischen
Umfeld anwendet. Die dritte Studie untersucht die strategischen Reaktionen von
Energieunternehmen auf neue Vorschriften für die Energieindustrie und diskutiert
Faktoren, die das strategische Entscheidungsverhalten von Führungskräften
beeinflussen. Die Erforschung der Rolle von Emotionen während des
Veränderungsprozesses der deutschen Energiebranche erweitert unser Verständnis von
der Wirkung von Emotionen auf die strategische Entscheidungsfindung und vom
Zusammenspiel von Emotionen und Risikowahrnehmung in Zeiten institutionellen
Wandels und hat wichtige Implikationen für politische Entscheidungsträger, Manager
in der Energieindustrie und Wissenschaftler.
Schlagwörter: Erneuerbare Energien, Emotionen, Phasentheorie des Sterbens,
Strategischer Wandel, Energieindustrie, Risikowahrnehmung, Inhaltsanalyse
Introduction
1
Introduction2
Background and Problem Statement
[I] am not an advocate for frequent changes in laws and constitutions. But laws
and institutions must go hand in hand with the progress of the human mind. As that
becomes more developed, more enlightened, as new discoveries are made, new truths
discovered and manners and opinions change, with the change of circumstances,
institutions must advance also to keep pace with the times.
– Thomas Jefferson (1743 – 1826)
The global energy industry is transforming. $244 billion were invested in
renewable energies worldwide in 2012 (UNEP, 2013). In Germany, the share of
renewable energies constantly grew over the last decade to 25 percent of gross energy
consumption in 2013 (BDEW, 2014). This change is driven by a rising awareness of
the negative implications of climate change, changing social norms, and technological
enhancements (Bird, Wüstenhagen, & Aabakken, 2002; Foxon et al., 2013).
Governments in many countries support the transition from conventional to renewable
energy sources and implemented energy policies to improve the economic viability of
renewable energy investments (IPCC, 2011). Major energy incumbents play an
important role in this change as they on the one hand belong to the largest emitters of
CO2, on the other hand they have the financial means, energy market expertise, and
human capital to drive the transition in the energy industry. In Spain for example,
Iberdrola, a major energy utility operating conventional energy power plants, in the
mid-1990s decided to change its strategy and gradually shifted its investments toward
renewable energies (Stenzel & Frenzel, 2008). As a result, Iberdrola became market
leader in renewable energies in Spain and the largest operator of wind energy
worldwide (Iberdrola, 2011). Yet not all energy utilities interpret renewables as an
2
Please note that if specific reference is made to the papers, they are referred to as first paper (Russell
and Friedrich, 2013), second paper (Friedrich & Wüstenhagen, 2014), and third paper (Friedrich,
2014). Several sentences of this chapter are drawn from the first, second, and third paper without
explicit citation.
2
Introduction
opportunity. In Germany, the four major energy utilities initially lobbied against new
policies and denied market opportunities that resulted from new regulations and
technological enhancements (Stenzel & Frenzel, 2008; Wüstenhagen & Bilharz,
2006). By 2009, the four major energy utilities only had a market share of 3.9 percent
of the renewable energy market in Germany, while 96.1 percent were run by others,
mostly private investors and small to medium size companies (IÖW, 2011). The
phenomenon of diverging strategic reactions in response to an issue has been a field of
scholarly inquiry and observed in organizations in the energy (Jacobsson & Lauber,
2006; Johnson & Jacobsson, 2001), technology (Aragon-Correa, 1998), oil and gas
(Sharma, Pablo, & Vredenburg, 1999), and chemical industry (Hoffman, 1997).
Strategic issue interpretation literature offers a theory explaining the development
of different organizational responses to an issue. Following this logic, the reaction of
an organization in response to an issue depends on the interpretation of the issue as
threat or opportunity by key agents within the organization (Dutton & Jackson, 1987;
George et al., 2006; Jackson & Dutton, 1988). When interpreted as a threat, an
organization is likely to take a defensive strategic stand (Jackson & Dutton, 1988;
Sharma, 2000), as observed in the German energy industry (Stenzel & Frenzel, 2008).
Respectively, when key agents within an organization interpret an issue as
opportunity, they are more likely to pursue a proactive strategic response, as observed
in the Spanish energy industry in response to the development and regulatory support
of renewable energies. Research indicated that three factors influence an individual’s
perception of an issue as threat or opportunity: positive or negative emotional
associations, gain and loss considerations, and perceived control (Dutton & Jackson,
1987; Jackson & Dutton, 1988; Sharma, 2000). While all three factors are important,
more recent findings from neuroscientists indicate that especially emotional factors
play an important role in decision-making processes and the interpretation of an issue
(Bechara, Tranel, & Damasio, 2000; Bechara, 2004). Until recent, research of
emotions received scant attention in management research (Campbell, White, &
Johnson, 2003; Madlock, 2008; Huy, 2012; Voronov & Vince, 2012) and even scanter
attention in the corporate sustainability literature (Wright & Nyberg, 2012; Russell &
Griffiths, 2008). The relative lack of research on emotions in management research
means that studies of decision-making processes of top executives in organizations
may have excluded a decisive factor (Ashforth & Humphrey, 1995; Barsade, Brief, &
Spataro, 2003; Russell & Griffiths, 2008; Voronov & Vince, 2012).
Introduction
3
By building upon research findings on emotions and change and drawing on the
strategic issue interpretation literature, this research aims to make two major
contributions. Firstly, this dissertation connects insights from psychology and
management research on organizational change to enhance our understanding of the
implications of emotions on strategic decision-making processes within organizations.
Secondly, I review the development of strategic responses of major energy utilities to
renewable energies and embed the findings in the context of research on emotions and
strategic issue interpretation. The studies that form this dissertation improve our
understanding of the underlying cognitive processes during the formulation of a
strategic response. This research makes a contribution to research, as to my knowledge
it is the first study that theorizes about the effects of negative emotions over change in
a sustainability-related context. The review of the strategic response of major energy
utilities to renewable energies outlines important implications for practitioners in the
energy industry and energy policymakers.
Objectives and Research Questions
The overall objective of this dissertation is researching the effect of emotions on
the strategic reaction of major energy utilities in response to the emergence of
renewable energies. Major energy utilities are an important part of the energy system.
Besides their role as taxpayers and employers, they have the capabilities and resources
to drive change in the energy system. However, studies have shown that many large
utilities struggle with the adaptation of their business model toward a rapidly changing
energy market (Stenzel & Frenzel, 2008; Jacobsson & Lauber, 2006; Johnson &
Jacobsson, 2001). Confronted with political actions for sustainable and against
conventional energy sources, changing customer preferences, disruptive renewable
energy technologies, market liberalization, and changing social norms, large energy
incumbents loose legitimacy and competitiveness in their markets. In response, many
energy utilities developed a defensive stand and lobbied against renewables rather than
exploring opportunities in the new market (Stenzel & Frenzel, 2008; Wüstenhagen &
Bilharz, 2006). One theory that explains why organizations are unwilling or unable to
adapt to a major change in their organizational field is path dependence (Sydow,
Schreyögg, & Koch, 2009), which has already been used to explain the defensive
strategic reaction of major energy utilities in response to the emergence of renewable
energies (Lovio, Mickwitz, & Heiskanen, 2011; Stenzel & Frenzel, 2008). Path
4
Introduction
dependence derives from the notion that established technologies, concepts and ideas
become perceptually dominant with time, success, and experience of the persons
connected to it (Baum & Silverman, 2001; Liebowitz & Margolis, 1995). It builds an
internal barrier to switch to or create a new path as the prior choice and investment of
personal, organizational or institutional resources hampers the move toward a new
direction (Romm, 2006). Research on organizations that do not adapt to a major
change in their organizational field has shown that such organizations tend to interpret
a change in their market as threat rather than an opportunity (Staw, Sandelands, &
Dutton, 1981). Moreover we have learned that one underlying factor for the
interpretation of an issue as threat or opportunity is emotions (Jackson & Dutton,
1988; Sharma, 2000).
Drawing on insights from research on emotions and strategic issue interpretation,
this cumulative dissertation investigates the role of emotions and other underlying
drivers for diverging strategic reactions of major energy utilities in response to the
evolution of renewable energies. I thereby aim to answer three impending questions:
firstly, what is the current academic discourse in the management literature
surrounding emotions (first paper); secondly, how do negative emotions over change
affect the perception of senior executives of their organization and their ability to
change it during upheaval in the organizational field (second paper); and thirdly,
which factors influence the strategic decision-making in major energy utilities in
response to energy policy changes (third paper). Table 1 summarizes the objective and
current publication status3 of each paper.
3
Publication status at the 1st of August, 2014.
Introduction
5
Table 1: Overview of research papers that make up this doctoral thesis
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6
Introduction
Together, these three studies form this cumulative dissertation with the title “The
Influence of Emotions on Strategic Decision-Making and Issue Interpretation in the
Energy Industry”. The research projects were kindly funded by the Nagelschneider
Foundation – Researching Renewable Energies [Stiftung Nagelschneider –
Erforschung Erneuerbarer Energien]. The knowledge gained in the papers is
interlinked and builds upon each other. Consecutively I briefly review the background
and objective of each study.
The first study is written together with Prof. Dr. Sally Russell at the University of
Leeds, who is also the main author of the paper. It is a peer-reviewed and accepted
chapter for the book “The Psychology of Greening Organization”, edited by Julian
Barling and Jennifer Robertson. Our paper reviews existing research that has
examined the role of emotions in an environmental context. Drawing on the
framework developed by Ashkanasy (2003), we segment the study along five levels of
emotions in organizations. The most micro-level of the model focuses on withinperson emotions, followed by emotions at the individual-level. The levels then proceed
through the meso-level including interpersonal and group level emotions, and finally
the macro-level perspective of organizational level emotions. We outline the relevance
of each level to the study of pro-environmental behavior in general and specifically in
the context of sustainability-driven organizational change. The second and third
studies draw upon the findings of this paper. Especially the second paper, which
theorizes about the effect of grieving executives over environmental change, builds
upon the extensive literature review of the first paper. It adopts Scherer’s (2001)
definition of emotions and draws upon findings on the individual- and organizationallevel. In the third paper, the research of the first study is reflected in the discussion,
where I theorize about the critical role of emotions to explain the interpretation of an
issue as threat or opportunity.
The second study theorizes about the effect of grieving of top executives in
response to a significant event in their organizational field. The paper is written in
cooperation with Prof. Dr. Rolf Wüstenhagen from the Good Energies Chair for
Management of Renewable Energies at the University of St.Gallen and accepted for a
special issue at the scientific journal Business & Society. In the paper we develop a
metaphoric model that segments the emotional reaction of senior executives in
response to a significant event along the five stages of grief as proposed by KüblerRoss (1969). The findings are embedded in the literature on emotions and strategic
change and illustrated through anecdotal evidence from senior executives in the
Introduction
7
German energy industry. As the first study to theorize about the implications of
grieving executives over sustainability-driven change, this conceptual paper adds an
important dimension to the analysis of sustainability strategies.
The third study empirically investigates the diverging strategic reactions of major
energy utilities in response to renewable energy policies. The paper is written alone
and is under review at the journal Energy Policy. It builds upon previous research of
Stenzel & Frenzel (2008) on the strategic reactions of major energy utilities in
response to energy policy changes. Besides enhancing previous findings on the
evolution of energy utility strategies, my research shows that strategies of energy
incumbents not only differ between countries but also between energy utilities in one
country. I therefore analyze the corporate communication and investments in wind
energy of four major energy utilities in Germany and Spain. Drawing on strategic
issue interpretation literature, I outline how the interpretation of an energy policy as
threat or opportunity by senior executives in major energy utilities affects the strategic
response of their organization. I discuss the underlying factors influencing the
perception of an issue and especially the importance of negative and positive
emotional associations. The study connects to the previous two by empirically
analyzing the development of the strategic response of major energy utilities and
discussing the importance of emotions.
Through my research I want to advance our understanding of the role of emotions
in organizations along institutional changes and the interplay of emotions and the
interpretation of an issue as threat or opportunity. The insights gained in this
dissertation add to our knowledge about decision-making processes during times of
upheaval in the organizational field. Understanding the role and significance of
emotions during such a process may help organizations to better and faster address
change, break-up path dependence, and innovate into new markets, resulting in a
greater legitimacy and improved performance.
8
Introduction
Theoretical Foundation4
In the following section, I briefly review the main research findings that form the
theoretical foundation of this doctoral dissertation. The interplay and effect of these
fields is researched in three studies of which the first is a literature review, the second
a theoretical contribution, and the third a comparative case study. Several authors
contributed to these fields from different perspectives. The most relevant studies are
outlined in table 2.
Table 2: Overview of most relevant studies
Research
Theoretical
objective
background
Shepherd,
Grief-recovery
Patzelt, &
Wolfe, 2011
after project
failure
Author
Level
Method
Main findings
Psychology,
Individual
Survey on
The grief-recovery
Stages theory
of grief
level
grief-recovery
process differs
depending on the
individuals’ specific
coping orientations.
Nigam &
Ocasio, 2010
Effect of events
on change in
Institutional
theory
Organization
level
Inductive case
study
event, an
organization goes
organizational
logics
through a stepwise
change process.
Stenzel &
Researching the
Resource
Organization
Frenzel,
2008
strategic
based view,
Inertia
level
response of
After a disruptive
Interviews
The strategic
reaction of energy
utilities in response
energy utilities
to renewable
to renewable
energies differs
energies in three
between countries,
European
ranging from
countries
defensive to
proactive strategic
responses.
4
This is only a short summary of the main literature streams that are the basis for each of the three
papers. Each paper additionally focuses on other theoretical fields that are relevant in the specific
context. Please refer to the particular paper for more details.
Introduction
9
Wüstenhagen
Analysis of the
Policy
Individual
Literature
The development of
& Bilharz,
2006
renewable
development
and group
level
review
a renewable energy
energy market
market is driven by
development in
new policies and
Germany and the
customer demand.
role of major
energy utilities
Utilities develop
different strategies in
response to
renewables.
Ashkanary,
2003
A multilevel
Psychology,
perspective on
Organizational
Multi-level
perspective
Theory
building
Emotions affect all
emotions in
organizations
behavior
Shepherd,
Grief process
Psychology,
Individual
Theory
Business failure can
2003
after business
failure
Emotions,
level
building
cause grieving which
Sharma,
Organizational
Strategic issue
Individual
2000
interpretation of
interpretation
level
levels within an
organizations from
within-person to
organization-wide .
Stages theory
of grief
can hamper learning
from it.
Interviews
Managers perceive
environmental issue
and response to
as threat or
environmental
issues
opportunity, which
in turn affects the
organizational
response.
Hoffman,
Organizational
Institutional
Organization
Content
Describes change
1999
evolution and
change
theory and
level
analysis
stages of
new
organizations in
institutional
theory
response to
institutional changes
Jackson &
The
Managerial
Individual
Survey on
Managers interpret
Dutton, 1988
interpretation of
decisionmaking
level
strategic
issues as threats and
decisionmaking
opportunities,
an issue as threat
or opportunity
managers react more
sensitive to threats
than to opportunities.
Source: Own research
Consecutively I briefly summarize the key theories that build the backbone of this
dissertation and discuss how and where emotions and decision-making are linked.
10
Introduction
Emotions and Strategic Decision-Making
In 2000, Bechara, Tranel, and Damasio published their results on experiments with
neurological patients that suffered from brain damage and could not process emotional
information normally. They found that individuals make decisions not just by
evaluating the consequences and their probability of occurring, but also and even
sometimes primarily at an emotional level (Bechara, Tranel, & Damasio, 2000;
Bechara, 2004). Their findings underline the significant and at times decisive role of
emotions in our decision making process. Until recent, the influence of emotions on
management research has been largely overlooked (Elfenbein, 2007; Voronov &
Vince, 2012). Emotional factors received scant attention to explain strategic decisionmaking processes or phenomena like path dependence or inertia (Campbell, White, &
Johnson, 2003; Madlock, 2008; Huy, 2012; Voronov & Vince, 2012) and many of the
few researchers who used emotional concepts have arguably been engaged in
“rhetorical devocalization” of emotions (DiMaggio, 1988, p. 3), thereby missing a
potentially decisive factor (Elfenbein, 2007; Voronov & Vince, 2012). Upcoming
issues, for example a new policy or disruptive technology, trigger an emotional
response by organizational leaders. Drawing on insight from strategic issue
interpretation, senior executives can interpret an issue or event as threat or opportunity
(Dutton & Jackson, 1987; Jackson & Dutton, 1988). The underlying cognitive
evaluation whether an issue is perceived as threat or opportunity is influenced by three
factors: Gain and loss considerations, perceived control, and negative and positive
emotional associations. Drawing on insights from neurological studies (cf. Bechara,
2004), I argue that especially emotional factors influence the interpretation of an issue.
Research has shown that the decision-making of individuals is stronger influenced by
a perception of an issue as threat than opportunity (Jackson & Dutton, 1988,
Kahneman & Tversky, 1979). The perception of an issue as threat can also result in
strong negative emotions toward the issue. In a study by Zell (2003), it was found that
change processes in organizations can trigger negative associations and be linked to
the stages theory of grief (Kübler-Ross, 1969). By studying the response stages of
terminally ill patients to awareness of their impending death, Kübler-Ross identified
five distinct psychological stages of grief: denial, anger, bargaining, depression, and
acceptance. The concept is widely accepted among clinicians and the general public
(Downe-Wamboldt & Tamlyn, 1997), even though it has yet to be validated in
empirical testing (Maciejewski et al., 2007). The application of psychological
Introduction
11
individual-level theories on management phenomena can enhance our understanding
of the process of decision-making and change (Bowman, 1982; Shimizu, 2007; Staw,
Sandelands, & Dutton, 1981). It helps to explain the behavior of executives when
confronted with high risks and changes in the organizational field. The stages theory
of grief was more recently introduced in management research. Foremost Shepherd et
al. produced an impressive body of research, studying grief recovery of self-employed
after business closure (Shepherd, 2003), grief recovery after the loss of a family
business (Shepherd and Kuratko, 2009), the learning process from grief recovery
(Shepherd, Patzelt, & Wolfe, 2011) and the grief process after failed corporate
entrepreneurship (Shepherd et al., 2009).
This dissertation interlinks the findings on strategic issue interpretation and
research on negative emotions over change. I argue that both streams are closely
intertwined as the perception of an issue as threat is connected to negative emotions,
which in turn could lead to the proposed grieving process. They are connected by
perceptual and emotional factors, two aspects that gained limited attention in these
fields (Sydow, Schreyögg, & Koch, 2009; Sharma, 2000; Voronov & Vince, 2012;
Bechara, Tranel, & Damasio, 2000). Sydow, Schreyögg, and Koch (2009, p. 702) note
“beyond discourse, however, reflecting path-bounded practices often requires
addressing the emotional side of inertial organizational patterns as well”. Burgelman
and Grove (1996) find that the emotional attachment of senior executives to a
business, practice, product, or service is connected to inertial behavior. More broadly,
the notion of economic relational seems to be predominant in management research
while the influence of perceptual and emotional factors is largely overlooked (cf.,
Campbell et al., 2003; Madlock, 2008; Voronov & Vince, 2012). Research on path
dependence and strategic issue interpretation indicates that the perception of an issue
as threat or opportunity by senior executives influences an organization’s likelihood to
become path dependent (George et al., 2006). The interpretation of an issue as threat
can lead to a defensive strategic response (Sharma, Pablo, & Vredenburg, 1999). As
shown by Sydow, Schreyögg, and Koch (2009), a defensive strategic response to
change is also an important element of path dependence. The connection between the
two streams is the predominance of perceptual and emotional factors, which influence
the interpretation of a policy as threat or opportunity and respectively an
organization’s likelihood to become path dependent. I argue that path dependence is a
result of a managerial issue interpretation as threat. I further argue that this is a selfenforcing alliance as companies that are already inbound in their actions are more
12
Introduction
likely to interpret a policy change in their field as threat. I discuss the link between
both researches in all three studies.
The first paper outlines how negative emotions are connected to the interpretation
of environmental issues like climate change as threat. The second paper applies the
stages theory of grief on managerial decision-making during upheaval in the
organizational field. We develop a model that outlines how negative emotions over
change affect a leader’s perception of the organization’s position in the market and
his/her ability to change the organization respectively. In the second study we also
discuss how the interpretation of an issue as threat connects to negative emotions over
change and implications for further research on the two streams. The third paper
empirically researches how the interpretation of energy policies in four major energy
companies differed and how this difference is translated into a proactive or defensive
strategic response to the emergence of renewable energies. I discuss how emotions
affect the perception of an issue as threat or opportunity and how these findings
contribute to research on decision-making and phenomena like path dependence or
inertia in an industry.
Research Framework
As previously mentioned the three studies that form this cumulative dissertation
are intertwined and build upon each other. Following a deductive research approach,
the first paper reviews the literature, the second develops the theory, and the third
empirically researches previous findings. Figure 1 illustrates the connection of the
different studies and how they contribute toward explaining the strategic response of
energy utilities to renewable energies.
Introduction
13
P1
P2
P3
Negative or
positive
emotional
associations
P2
P3
P2
P3
Gain and loss
considerations
Perception of
an issue as
threat or
opportunity
P3
Strategic
reaction
Perceived
controllability
P3
Figure 1: Research framework in the context of strategic issue interpretation
Source: Own illustration. Based on Sharma, Pablo, and Vredenburg (1999).
To illustrate how each paper contributes to the understanding of the factors
influencing the strategic reaction of an organization in response to an issue, I illustrate
the contribution of each paper along the findings of Sharma, Pablo, and Vredenburg
(1999), who research the underlying factors influencing the interpretation of an
environmental issue as threat or opportunity. The three studies connect to different
aspects of the research on strategic reactions to change. One element aligning all three
studies is the notion of negative and positive emotional associations. The first study
introduces and defines emotions and outlines how our feelings and actions are
interlinked. The second study researches the evolution of emotions over an issue from
negative toward more positive emotional associations and respectively a more
opportunity-driven strategic response. The third paper empirically researches the
14
Introduction
strategic response of major energy utilities and considers all aspects of the work of
Sharma, Pablo, and Vredenburg (1999). It reviews different strategic responses of
energy utilities and discusses the decisive influence of emotions on the interpretation
of an issue. Consecutively I outline the methodology behind each study, which further
outlines the interconnection of the three papers.
Methodology
This dissertation methodologically follows a deductive research approach (cf.
Whetten, 1989; Colquitt & Zapata-Phelan, 2007). Theory building allows describing
and explaining a process or sequence of events (Mohr, 1982; DiMaggio, 1995), while
theory testing allows validating the proposed idea (Popper, 1965; Hempel, 1966). The
first paper is an extensive review of the literature on emotions in management
research. The second paper builds upon these findings and develops a theoretical
framework that theorizes about the effect of negative emotions over change and
illustrates the model with anecdotal evidence from the German energy industry. The
third paper empirically researches the strategic reactions of major energy utilities in
response to the emergence of renewable energies. It draws upon the findings of the
first two papers and empirically validates the theory by outlining the link between the
negative perception of an issue and a defensive strategic response.
The first paper reviews the literature on emotions and forms the theoretical
foundation of this dissertation. We review the relevant literature and segment our
findings along a multi-level framework developed by Ashkanasy (2003). The paper
does not gather or analyze data.
The second paper researches the influence of emotions on managerial decisionmaking with a specific focus on the German energy industry. This decision was made
as previous studies outlined the defensive strategic reaction of major German energy
utilities in response to renewable energies (Stenzel & Frenzel, 2008; Kivimaa &
Kautto, 2010; Wüstenhagen & Bilharz, 2006). Based on the literature review of the
first paper, the second paper develops a model that outlines the development and
implications of negative emotions over an issue over time. The research is illustrated
with anecdotal evidence, which is derived from publically available information in
interviews and statements of leaders in the German energy industry. The data in this
paper is not comprehensive and its only purpose is to illustrate the idea developed in
Introduction
15
this conceptual paper. In the discussion section we outline different approaches to
empirically test the model.
The third paper is an empirical study that analyses the corporate communication
and investment strategy of major energy utilities in Germany and Spain and aims to
validate parts of the theory developed in the second paper. Through a content analysis
(cf. Weber, 1990) of the corporate communication of four major energy utilities in
Germany and Spain between the years 1998 and 2011, I empirically validate the
importance of perceptual elements on the interpretation of an issue and the respective
organizational response. I apply a coding scheme around the terms renewable energy
and wind energy. The analyzed documents include annual reports, sustainability
reports, financial reports, operations reviews, corporate governance reports, and legal
statements. The data of the content analysis was reviewed and cleansed to exclude
statements that were irrelevant for the strategic analysis, for example “annually
renewable insurance policies”. A content analysis of corporate reports sheds light on
issues concerning a firm and its strategic direction (Bowman, 1984), which allowed
me to shed light on the development of diverging strategic responses within the energy
industry.
Through a combination of theory building and theory testing, this dissertation aims
to provide a solid ground for further work on the role of emotions for managerial
decision-making and risk perception during times of change in the organizational field.
Overall Findings and Implications
This dissertation summarizes three studies researching the strategic response of
major energy utilities to the emergence of renewable energies, with a focus on the
underlying factors influencing the perception of renewables by senior executives and
the strategic response of their organizations. I emphasize on the importance of
emotional factors in the strategic decision-making of senior executives and develop a
theoretical model that conceptualizes the evolution of emotions from denial to
acceptance in response to an environmental issue over time and the effect of the
different emotional stages on managerial decision-making and risk perception. Most
fundamentally, the evidence emerging from these studies suggests that emotions are an
important and so far overlooked factor in managerial decision making and
significantly influenced the strategic reaction of energy utilities in response to the
emergence of renewable energies.
16
Introduction
The findings are embedded in the literature, draw upon previous studies and make
important implications to the research on strategic decision-making, managerial risk
perception, and phenomena like path dependence and inertia. Based on the findings of
this research and drawing on findings from path dependence and strategic issue
interpretation research, I argue that both streams are closely intertwined.
The first paper reviews the literature on emotions in a sustainability related context.
The findings are structured along the multi-level framework developed by Ashkanasy
(2003) and outline the current academic discourse around emotions in an
environmental context. Our findings outline that research in this field is scarce,
especially on an organizational-level. We define an agenda for future research and call
for studies investigating the role of emotions in decision-making and risk perception of
senior executives in response to environmental issues.
The major contribution of the second paper is the development of a conceptual
framework outlining the effect of negative emotions over change on a key agent’s
perception and ability to change. We draw on psychological findings on grieving and
adapt the stages theory of grief by Kübler-Ross (1969) on management research. The
study illustrates the theory with anecdotal evidence from senior executives in the
German energy industry in response to the emergence of renewable energies. The
study makes important contributions to the research of decision-making processes and
enhances our understanding of phenomena like path dependence and inertia in a
sustainability-related context. We also discuss implications for the industry and
policymakers and outline how to empirically validate the concept in further research.
The third paper aims to empirically research the reactions of German and Spanish
energy utilities in response to renewable energy policies. I therefore review the
development of the wind market and the policy landscape in Germany and Spain and
analyze the corporate communication of four major energy incumbents in both
countries. The findings indicate that the interpretation of an issue as threat or
opportunity by senior executives in these companies influenced the strategic response
of their organizations to renewable energy changes. The results are an enhancement of
previous studies on strategic change in the energy industry (Stenzel & Frenzel, 2008;
Wüstenhagen & Bilharz, 2006) and contribute to our understanding of the
phenomenon of organizations that pursue opposing strategies in response to a similar
change in the institutional field. The study discusses implications for practitioners and
policymakers and calls for further research studying the role of emotions in the
interpretation of an issue as threat or opportunity.
Introduction
17
The dissertation aims at contributing to the work of academics, practitioners in the
energy industry, and policymakers.
Firstly, the research of the effect of emotions on managerial decision-making in
response to sustainability-driven change in the organizational field has implications for
academics. The importance of emotions on managerial decision-making is not just a
hypothesized effect but proven in medical trails. Bechara, Tranel, and Damasio (2000)
researched the decision-making processes in neurological patients that could not
process emotional information normally. Their findings show that risks are not
evaluated based on the consequences and their probability of occurring, but often
primarily at an emotional level. While the role of emotions has implications on
different research streams and fields, it is particularly important for sustainabilityrelated research (Wright & Nyberg, 2012; Russell & Griffiths, 2008), which is often
illustrated in emotionally loaded political and public discourses surrounding
environmental issues. By researching the role of emotions in managerial decisionmaking in response to the emergence of an environmental issue, this research makes
an important contribution by enhancing our knowledge about the underlying drivers
behind environmental strategies of organizations. Specifically, the first paper
summarizes the current discourse in the literature on emotions in sustainability-related
researches and discusses implications on current and future research. The second paper
applies the stages theory of grief by Kübler-Ross (1969) on managerial decisionmaking and risk perception and illustrates it by reviewing the strategic reactions of
major energy utilities to the emergence of renewable energies in Germany. To my
knowledge, it is the first study that discusses the influence of negative emotions over
sustainability-driven change in management research. If validated by further research,
the study has important implications on different research streams including
managerial-decision making, risk perception, path dependence and inertia, and
organizational change. The third paper draws upon research on the managerial
interpretation of an issue as threat or opportunity, which is influenced by positive and
negative emotional associations. The paper links research on strategic issue
interpretation and path dependence to insights from psychological research on
emotions, thereby combining different research streams and outlining future research
directions.
Secondly, the studies that form this dissertation have implications on the work of
practitioners in the energy industry. From an institutional theory perspective, one of
the main drivers for organizational transformation is gaining legitimacy (Desai, 2011;
18
Introduction
George et al., 2006; Puffer and McCarthy, 2011; Suddaby and Greenwood, 2005).
Weber (1978) defined legitimacy at a collective-level as “validity”, meaning that the
norms, beliefs and values are perceived as legitimate. Sustainability-related issues
increasingly affect social norms and political actions (Bird, Wüstenhagen, &
Aabakken, 2002; Foxon et al., 2013), which in turn lead to changing customer
preferences and new regulations. Leaders need to address these environmental issues
and change the company respectively in order to maintain legitimacy and ultimately
ensure the survival of their organization (North, 2005). The second and third study of
this dissertation review the strategic response of leaders to a decisive event in their
organizational field, the emergence of renewable energies, and the consequences of
their actions for their organization. The second study theorizes about the effect of
grieving leaders on their perception of the organization’s position in its market and
their ability to strategically change the organization respectively. If proven in further
research, the study demonstrates the potential threat of grieving leaders for their
organization as it hampers their ability to adapt to new intuitions, which threatens the
competitiveness and over time the survival of the organization. Drawing on findings
from bereavement services, we discuss how organizations can identify, address, and
prevent grieving of senior executives. Leaders and organizations can learn from these
findings and select and prepare their leadership team for times of upheaval in the
industry. In the third study I research how different strategic interpretations of an issue
affect the organization’s position in a market over time. The data is derived from four
comparative case studies of German and Spanish energy utilities, which outlines very
different strategic responses to the emergence of renewable energies. Practitioners can
learn about the factors that influence their perception of an issue as threat or
opportunity. I further outline considerations for the selection process of a leadership
team during times of change and how an organization can develop an opportunistic
view toward sustainability-driven change. Besides selecting a leader with the right
background and experience for times of change in an industry, the study underlines the
importance of developing resources and capabilities in a new business field at an early
stage in order to interpret a consecutive societal and political move toward a new
industry as business opportunity.
Thirdly, the second and third paper outline important implications for energy
policymakers. Firstly, the findings of the dissertation underline the influence of
policies on an industry. The second and third study review the effect of new energy
policies on the development of the market. Favorable renewable energy policies led
Introduction
19
Germany and Spain to become two of the largest markets for wind and solar energy
and triggered a significant growth in clean energy sources, thereby contributing to a
more environmental and climate friendly way of energy production and reducing
nuclear hazards. Beyond a review of the implications of energy policies on the market,
both studies outline why corporate responses to energy policy changes differed so
widely. In the third paper I discuss how policy makers can influence the underlying
factors leading to the perception of an issue as threat or opportunity. I argue that
policymakers should aim for support from major industry players to increase the
legitimacy of their actions and make the companies use their resources and capabilities
to achieve the policy goals. I recommend outlining potential opportunities for the
industry and the irreversible nature of the policy to increase investment certainty.
Thereby, energy utilities can develop renewable energy capabilities and their leaders a
greater feeling of control. This could change their perception of an issue and lead to a
more opportunity driven organizational response.
Overall Limitations and Suggestions for Further Research
The studies that form this conceptual dissertation have a number of shortcomings,
which I will discuss in the following section. The first paper is a literature review
analyzing the researches on emotions in a sustainability-related context. While the
paper lays a solid foundation for the consecutive studies, the major shortcoming is the
lack of tangible results. Neither are hypotheses derived as a result of the literature
review nor new theories developed. While we summarize the most important studies in
this field, we could not include all findings on the field of emotions due to the many
contributions to this field from different disciplines. We might therefore have excluded
a decisive factor in our research. That said, we belief that the summary of the current
research in this burgeoning area outlines directions for future research and will spark
further interest in this field.
The second study is a conceptual paper, which comes with some natural limitations.
Foremost, we do not test the developed theory. The conceptual model is derived from
an extensive literature review, yet it is based on some basic assumptions that need to
be challenged in future research. We assume for example that grieving in a
management context over a major negative event in the organizational field has some
similarities to the grieving of an individual in response to a personal life-changing
event. Another major limitation of our findings is the lack of validity of the stages
20
Introduction
theory of grief, which forms the conceptual foundation of our work. While many
practitioners acknowledge the applicability of the model in their work, research could
not find sufficient empirical support for the model (Maciejewski et al., 2007). We
understand our work as an early contribution to an emerging field and call for research
to empirically test and possibly refine the model.
The third paper is empirical in nature and analyses corporate reports of four major
energy utilities through a content analysis. While this is a valid approach to derive
insights on the strategic direction of an organization (Bowman, 1984), the reviewed
data has a number of limitations. During the researched timeframe from 1998 to 2011,
the four case companies changed their reporting a number of times, which challenged
the comparability and validity of the results. The sample of reports had to be cleansed
as several years had a structure and content that was very different from previous
years. The result had to be further cleansed to exclude references to renewable
energies without relevance for the strategic analysis, for example weather events
affecting renewable energy sites. Furthermore, reports in two different languages
including Spanish and German had to be reviewed. While two researchers that were
fluent in these languages reviewed the data, certain contexts might have been
misinterpreted. Despite these limitations, the content analysis overall clearly outlined a
strategic shift toward renewable energies with the exception of Endesa, which sold
most of its renewable energy after being acquired in 2007.
A general remark limiting the contribution of this research is the choice of an
institutional theory perspective as underlying management theory for this dissertation.
While other studies adopted this perspective when researching phenomena related to
organizational change (cf. Desai, 2011; George et al., 2006; Hoffman, 1999; Newman,
2000; Puffer & McCarthy, 2011; Suddaby & Greenwood, 2005) and also addressed
the role of emotions in this field (cf. DiMaggio, 1988; Voronov & Vince, 2012), other
theoretical perspectives could shed further light on the research of emotions in a
sustainability-related field. Other obvious perspectives are a resource based view or
agency theory to research how key agents make decisions and how organizations
transform. I call for further research studying the underlying factors influencing
decision-making and risk-perception during times of upheaval in an organizational
field to broaden our knowledge on the role of emotions in a management context.
In conclusion, the studies in that form this cumulative dissertation enhance our
understanding of the underlying factors influencing the strategic reactions of major
energy utilities in response to the emergence of renewable energies. The findings have
Introduction
21
important implications for practitioners in the energy industry, energy policymakers,
and academia and will hopefully spark further research on the underlying factors of
strategic decision-making in an environmental context.
22
Introduction
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First Paper
Emotions in Green Organizations5
Sally Russell*, Elmar Friedrich†
Abstract
In this chapter we argue that emotions play a critical role in determining proenvironmental behavior both within and outside the workplace. Using Ashkanasy’s
(2003) multi-level model of emotions, we illustrate how emotions influence
organizational greening at all levels of analysis, from the most fundamental level that
includes fluctuations in day-to-day emotions of all employees, through to the shared
emotional experiences of organizational members that make up the emotional climate
of the organization. Specifically, we examine pro-environmental behavior research
that occurs at the five levels of: within-person, between-persons, interpersonal
interactions, group-level, and organizational-level. A recurring theme throughout our
review is the interrelatedness of emotions and pro-environmental behavior across all of
the levels of analysis. Indeed, while we have attempted to categorize extant research
into each of the levels, it is clear that most of the research we review could be
considered to span multiple levels. Thus, our review illustrates the dynamic nature of
emotions and the interrelatedness of emotional variables across all levels of analysis.
We describe the implications for future research and practice and note that there is a
need for future research to develop further in the exploration of emotions at macrolevel analyses. Particularly we suggest that research that examines how emotions
progress from the individual to the organization and vice versa will be important in
advancing understanding of how emotions affect organizational greening.
Keywords: Emotion, Affect, Sustainability
*
†
Sustainability Research Institute, University of Leeds, United Kingdom.
Institute for Economy and the Environment, University of St.Gallen, Switzerland.
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Introduction
In this chapter we argue that the role of emotion in greening organizations
deserves further attention and is a fruitful area for further research. Research in the
broader management literature has clearly demonstrated how organizations are
inherently emotional places (Ashkanasy & Ashton-James, 2005; Elfenbein, 2007;
Voronov & Vince, 2012), yet far fewer studies have examined the relationship
between emotions and organizational greening (Russell & Griffiths, 2008). Scholars
such as Fineman (1996, 1997) and Pratt and Dutton (2000) have suggested that
environmental issues are likely to be more emotional than other types of issues within
organizations. Yet the relative lack of emotion-based research has meant that research
in organizational greening may not have kept pace with theoretical and empirical
developments in the wider organizational literature (Ashforth & Humphrey, 1995;
Barsade, Brief, & Spataro, 2003). In this chapter we review what research has been
conducted to date with the aim of setting an agenda for future research in this
burgeoning area.
For the purposes of setting a clear research agenda, we use Ashkanasy’s (2003)
integrated multi-level framework of emotions in organizations as a starting point to
review relevant research and literature. Ashkanasy suggests that emotions in the
workplace can be categorized according to the five levels at which they occur. The
most micro-level of the model focuses on within-person emotions, followed by
emotions at the individual-level. The levels then proceed through the meso-level
including interpersonal and group level emotions, and finally the macro-level
perspective of organizational level emotions. We argue that this framework provides a
useful foundation for our chapter and it allows us to examine current research as it
relates to each level of analysis. In the following section we set the context of the
chapter by first defining emotion. We then review current research that examines
emotion at each level of analysis and identify the relevance of the level to the study of
pro-environmental behavior in general and then specifically to the organizational
context. In the final section of the chapter we outline the challenges and opportunities
of studying emotion as it relates to the psychology of greening organizations and in
doing so we aim to set an agenda for future research that is both innovative and
impactful.
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Defining Emotion
Throughout this chapter we use the term emotion to describe an intense reaction to
an event (Frijda, 1986; Scherer, 2000, p. 152). Although there is ongoing debate on
how emotion should be defined, this definition captures the predominant scholarly
point of view that emotions are a reaction to an event, and are strong in intensity
(Briner & Kiefer, 2005; Frijda, 1993; Izard, 1991). Throughout the chapter we
predominantly use the term emotion rather than other affective constructs, such as
mood, or affect, as it is the object specificity of emotion that is of most relevance when
discussing emotion and environmental issues. In contrast to emotion, moods are
diffuse, lack object specificity, and are generally less intense (Forgas, 1994; Scherer,
2000). Moods can be described as operating “…more in the background, with lower
intensity” (Briner & Kiefer, 2005, p. 286). Alternatively, affect is commonly used as
an umbrella term for all affective phenomena (Briner & Kiefer, 2005; Elfenbein, 2007)
and therefore lacks the specificity that is implied by the term emotion.
Elfenbein (2007) describes the emotional experience as a process that begins when
an individual is exposed to an emotion-eliciting stimulus. The individual then registers
the stimulus for meaning, leading to the experience of a feeling state as well as
physiological changes. Elfenbein argues that this process of experiencing emotion has
consequences for attitudes, behaviors, and cognitions, as well as for facial expressions
and other emotionally expressive cues. The relationships that Elfenbein describes
between emotional experiences, cognition and behavior are particularly important in
the context of greening organizations.
Scholars have suggested that emotions activate and prioritize behaviors by
signaling action readiness – a concept that links different emotions with different
behavioral responses (e.g., to run away in fear, or to fight in anger) (see, Frijda, 1986;
Izard, 1991). Lazarus (1991) suggests that emotional experiences trigger specific
automatic responses that lead to a state of action readiness. These behavioral
tendencies have a strong adaptive function, helping the individual to adjust to or to
shape the changing environment (Elfenbein, 2007; Frijda, 1986; Lazarus, 1991).
Cognition is another important component of emotion (Elfenbein, 2007). The most
widespread view is that emotions result from cognitive appraisals made following an
event that is of major importance to the individual (Lazarus, 1991; Scherer, 2000).
Lazarus (1991) and Scherer (2000) suggest that events are appraised in relation to
different dimensions that may include an individual’s personal values, goals, or social
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norms. These appraisals serve as an information processing mechanism that helps
distinguish the relevance and importance of events or information (Scherer, 2000).
Level 1: Within-Person Emotions
The first level of Ashkanasy’s (2003) multi-level model is the within person level.
Individuals’ emotions have been shown to fluctuate over time (To, Fisher, Ashkanasy,
& Rowe, 2012; Weiss & Cropanzano, 1996), with fluctuations day-to-day as well as
from moment-to-moment. By including this level of analysis, Ashkanasy takes
account of the dynamic nature of emotion and the fluctuations that occur within
individuals. We agree with Ashkanasy and suggest that it is important to consider
variations at the within-person level of analysis and the subsequent impacts that these
fluctuations may have on behavior. Indeed, as noted in our introduction, emotional
reactions to environmental issues can take many forms and they may differ depending
on the cognitive appraisals that individuals ascribe to specific issues.
More recent theories of emotion take account of within person fluctuations in
emotion, including affective events theory, or AET (Weiss & Cropanzano, 1996) and
the affect infusion model (Forgas, 1995). Affective events theory posits that emotional
states at work are determined by the daily hassles and uplifts that are experienced in
working life. These experiences generate specific emotional reactions that are
hypothesized to influence subsequent behaviors and actions. The affect infusion model
is focused more specifically on positive emotions. Fredrickson (2003) suggests that the
experience of positive emotion broadens an individual’s scope of thoughts and
possible actions and builds their personal resources. It is posited that the result of this
process leads individuals to demonstrate greater engagement in alternative and
positive workplace behaviors.
The work of Bissing-Olson, Iyer, Fielding and Zacher (2013) is the first study of
which we are aware that has sought to specifically examine within person fluctuations
in emotion and their effect on pro-environmental behavior. This study is an important
development in the field and clearly demonstrates how fluctuations in emotion can
influence individual pro-environmental behavior. Using a diary-based method,
Bissing-Olson et al. (2013) were able to capture fluctuations in emotional expressions
over the course of 10 days. The authors challenge the assumption of previous research
that individuals express emotions consistently from day to day and that proenvironmental behaviors are performed routinely. Bissing-Olson and colleagues
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examined the degree to which daily positive affect and pro-environmental attitude
predicted two different types of pro-environmental workplace behavior; namely task
related and proactive behaviors. Their results revealed that employees were more
likely to carry out their required work tasks in environmentally friendly ways when
they felt calm, relaxed, and content, providing evidence that emotional states do
indeed influence pro- environmental behavior at work. Another unique and interesting
conclusion from this study is that the emotions that predicted environmentally friendly
behavior were not necessarily directed toward environmental issues; rather, incidental
emotions about any target were shown to influence pro-environmental behaviors in the
workplace.
Based on the research on within-person emotions it is clear that emotions vary
from day-to-day and even from moment-to-moment (Bissing-Olson et al., 2013; To et
al., 2012). Indeed, at one moment we may experience sadness and the very next
moment we may feel joy or hope or elation (Ashkanasy, 2003). While research to date
has demonstrated that there is variation at this level, little is known about how these
variations may affect pro-environmental behavior in general and in the workplace
specifically. Bissing-Olson and colleagues (2013) extend our understanding of this
phenomenon, but more needs to be done. Indeed, there is little known about how
negative emotions affect pro-environmental behavior, nor is it clear how discrete
emotions at the within-person level may affect subsequent behaviors and decisionmaking.
Level 2: Emotions Between Persons
Although emotions have been shown to fluctuate within individuals, Ashkanasy
(2003) notes that there are some elements of emotion that can be described at the
between-person level. Emotions at this level of analysis can also be described as
individual differences. Traits are one example, whereby individuals demonstrate trait
emotion as a general personal disposition to be in a long-term positive or negative
affective state. Past research has shown that trait affect plays a small role in
determining personal outcomes in organizational settings (Fox & Spector, 2000; Staw
& Barsade, 1993). Within the pro-environmental literature much work has been
conducted on between person variables, or traits, and their influence on behavior,
however the focus of these studies has tended to be dominated by attitudinal and
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cognitive variables rather than the affective determinants of behavior (e.g., Bamberg &
Möser, 2007; Steg & Vlek, 2009). There are however, some notable exceptions.
First, Kals, Schumacher and Montada (1999) found that pro-environmental
behavior, or nature protective behavior as they term it, could not be sufficiently
explained using a purely rational-cognitive approach; rather, they found that both
positive and negative emotions serve as predictors of nature protective behaviors.
Pooley and O’Connor (2000) also examined emotion as an antecedent of motivation
and found that the inclusion of both cognitive and affective variables as antecedents
for environmental attitudes greatly improved the strength of their model predicting
pro-environmental behavior.
Other researchers have considered more specific discrete emotion experiences. For
example Bamberg, Hunecke, and Blöbaum (2007) examined the role of guilt in the
formation of personal norms and subsequent public transport use. In a large-scale field
survey, they found that feelings of guilt were caused by an awareness of the negative
environmental impacts of car use. This emotion then led to an obligation (or personal
norm) to use public transport, a more “environmentally friendly” mode of transport.
Contrary to their expectations, however, they also found a direct, negative relationship
between guilt and behavior. They suggested a possible explanation of the direct effect
could be that feelings of guilt may paralyze the ability to act. The evidence suggests,
however, that paralysis is subverted in the presence of strong personal norms
(Bamberg et al., 2007).
Within a workplace context, Giacalone and his colleagues (Andersson, Giacalone,
& Jurkiewicz, 2007; Giacalone, Paul, & Jurkiewics, 2005) have also demonstrated the
importance of emotion. In these studies, Giacalone et al. (2005) and Andersson et al.
(2007) demonstrated that the emotions of hope and gratitude had a significant impact
on self-reported corporate social responsibility (CSR). Although not measuring proenvironmental behavior per se, the measures of CSR used in these two studies
integrate pro-environmental behaviors as a dimension of CSR. The results from these
studies showed that respondents who reported greater levels of hope and gratitude also
reported a greater sense of responsibility for employee and societal issues. If CSR is
taken as an approximation of pro-environmental behavior, these findings suggest that
positive emotions can lead to greater engagement in pro-environmental behavior, a
finding congruent with results at the within person level of analysis (Bissing-Olson et
al., 2013).
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Emotions have also been shown to be important in determining a career choice in
organizational greening. Vining (1992) for example showed that positive emotional
affinity for nature was a strong motivational force for individuals who entered careers
in environmental and resource management. Similarly, Kearins and Sharma (2007)
also found emotion to be an important factor in driving sustainability careers.
Another aspect of the between persons level is the trait of emotional intelligence
(Ashkanasy, 2003). Although the trait of emotional intelligence is yet to be studied in
depth in relation to organizational greening, it may be important in understanding
greening behavior. Defined as an individual’s capacity to deal with emotions in
everyday life (Ashkanasy, 2003, p. 24), emotional intelligence is a relevant variable
that can impact behavior, but it is not a direct measurement of emotional expressions
or experiences.
Research studies by Egri and Herman (2000) and Andersson and Bateman (2000)
hint at the importance of emotional intelligence for those individuals who are involved
in organizational greening. Egri and Herman (2000) investigated the concept of
emotional maturity, rather than emotional intelligence, although the two constructs do
have similarities. What Egri and Herman found was that emotional maturity was a
significant factor in predicting the environmental leadership success of not-for-profit
organizations, but not in for-profit organizations.
The work of Andersson and Bateman (2000) may also suggest that emotional
intelligence is important in determining the success of environmental champions. In
their study of environmental championing behavior, Andersson and Bateman found
that the most successful champions were those that were able to sell environmental
issues in a way that was aligned with the organizational context or paradigm. In other
words, those individuals who were most successful in selling environmental issues
were also those who were aware of the emotional climate of the organization and were
able to sell their environmental issues accordingly.
The studies described in this section demonstrate the importance of emotion as a
driver of pro-environmental behavior. Research has shown that both positive and
negative emotions are important (Kals et al., 1999; Pooley & O'Connor, 2000) and that
discrete emotions can lead to differential effects on pro-environmental behavior
(Andersson et al., 2007; Bamberg et al., 2007; Giacalone et al., 2005). While these
studies certainly add to knowledge of the role of between person emotions and proenvironmental behavior, more research is needed. Vining and Ebreo (2002) for
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example, suggest that additional research on self-conscious emotions such as pride,
shame and guilt, may be particularly important for future research.
The evidence of emotion at this level also shows that emotional intelligence may
be important in determining the success of environmental champions (Andersson &
Bateman, 2000; Egri & Herman, 2000). Without strong empirical data to support this
proposition, however, this relationship remains speculative. Therefore, future research
that examines the relationship between emotional intelligence and championing
success would be valuable in advancing this area of research.
Level 3: Interpersonal Interactions and Emotions
The third level includes the emotions of interpersonal interactions and this
involves the communication of emotion. At this level of analysis emotions can be
considered a relational phenomenon and they are therefore the central tenants of
literature on emotions in organizations. Ashkanasy (2003) suggests that emotions at
this level of analysis serve as the links between Levels 1 and 2 (at the micro level) and
Levels 4 and 5 (at the group and organizational levels). As such, Level 3 of the model
can be considered a meso-level construct (Rousseau, 1985).
Emotion is an essential element of communication and it has been shown to be an
important signal of message importance or relevancy (Clore, 1994). Non-verbal
emotions that are displayed via facial expressions, voice tone, and body language have
also been shown to indicate the importance of a message (Ekman, 1982). Thus the
communicative function of emotion is critically important (Ashkanasy, 2003).
Evidence from environmental psychology suggests that valence and intensity of
emotion in environment-related communication has an impact on pro-environmental
actions. For example, Lord (1994) grouped emotions according to their valence (either
positive or negative), and demonstrated that both positive and negative messages have
a significant impact on pro-environmental action and attitudes. In his experimental
study of recycling behavior, he found that those messages that were positively framed
tended to engender positive attitudes, belief in the recycling message, and inducement
of pro-environmental action. However, contrary to his hypotheses, he found that
negatively framed appeals were also an effective means of increasing recycling
behavior. Such findings suggest that both positive and negative emotions can be
inducements of pro-environmental action.
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Vining (1987) has also conducted experimental research using variables of
emotional communication. In this case, however, she did not test the valence of
emotion, but, rather, the intensity. In her study she presented scenarios where
participants were forced to decide for or against a development application based on
the environmental information they were given. Vining found that individuals
presented with information using a “hot” emotional style were more likely to be make
a pro-preservation decision, compared to those who received information that was less
emotive, or “cool”. Based on these findings, it is possible that the intensity of emotion
(hot or cool) is likely to impact on the pro-environmental actions of individuals.
More recent work has tended to focus on climate change communication. O’Neill
and Nicholson-Cole (2009) for example, demonstrated that fear-inducing
representations of climate change were effective in attracting attention, however, they
were ineffective in motivating genuine personal engagement in pro-environmental
behaviors. Rather, they found that non-threatening imagery that links to individuals’
everyday emotions and concerns tended to be most engaging.
Wright and Nyberg (2012) researched the responses to climate change from
another interpersonal perspective. Their study focused on the role of corporate
sustainability specialists as intermediaries, or ‘emotionology workers’, acting between
the social discourse and the organizational contexts (Wright & Nyberg, 2012). Wright
and Nyberg drew on the work of Stearns and Stearns (1985, p. 813) in describing
emotionologies as the “attitudes or standards that a society, or a definable group within
a society, maintains towards basic emotions and their appropriate expression” and the
“ways that institutions reflect and encouraged these attitudes in human conduct”
(Wright & Nyberg, 2012, p. 1562). Wright and Nyberg found that sustainability
professionals are key agents in the design and implementation of a positive
emotionology towards an environmental issue.
Opotow and Weiss (2000) also studied the development of emotions in response to
an environmental challenge. With respect to the threat of global warming, they showed
how individuals avoid being informed about an inconvenient issue. They noted that the
“denial of self-involvement minimizes the extent to which an environmental dispute is
relevant to one's self or one's group . . . By casting themselves as "clean" and
insignificant contributors to pollution, they assert their nonrelevance to environmental
controversy" (Opotow & Weiss, 2000, p. 485). Opotow and Weiss showed how an
emotional reaction, the denial of self-involvement, can influence the perception of an
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environmental threat within a (sub) group of individuals, leading to neglecting the
appropriate and socially demanded group response.
At this level of analysis we note a tendency for researchers to examine emotions
according to either positive or negative valence, with very few exceptions (cf., O’Neill
& Nicholson-Cole, 2009; Wright & Nyberg, 2012). Contemporary emotions scholars
(Briner & Kiefer, 2005; Elfenbein, 2007; Gooty, Ashkanasy, & Gavin, 2009; Seo,
Feldman Barrett, & Jin, 2008) have made the point that it is no longer sufficient to
study emotion in terms of just positive and negative affective valence. This is because
discrete emotions with a particular affective valence (e.g., anger and sadness are both
examples of negative affect) may have differential effects. We argue that the study of
discrete emotions is of utmost importance in understanding the effect of emotion on
behavior across all levels of analysis, but particularly in relation to communication
which has to date been dominated by research on positive or negative emotions.
Indeed, while the research we have described has demonstrated that emotional
communications can influence pro-environmental behavior, much less is understood
about the differential effects of discrete emotions.
Level 4: Group Level Emotions
Groups can be defined as “a collection of two or more people who work with one
another regularly to achieve common goals” (Schermerhorn, Hunt, & Osborn, 2001, p.
174). Although groups interact on a dyadic and collective basis they also add an
additional layer of complexity to relationships and emotions. Ashkanasy (2003)
therefore considers groups as a separate level to the dyadic interactions described at
Level 3. Research on emotions and organizational greening often explores individuallevel emotions with relatively little attention paid to phenomena at the more macro
levels of the group or organization. Indeed, our literature search returned a distinct
lack of research that was particularly relevant at the group level of analysis. Yet, as
noted in Ashkanasy’s model (2003), emotions at the group and organizational levels
are also important foci for research in this domain.
There is, however, some research to suggest the importance of groups for
sustainability issues, particularly in relation to how groups or subcultures can affect
the depth and diffusion of pro-environmental change within organizations. For
example, Howard-Grenville (2006) found that subcultures can influence how
organizational members interpret problems and set agendas and strategies for
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37
resolving them. Similarly, Linnenluecke, Russell and Griffiths (2009) showed that the
dominance of bureaucratic subcultures within an organization led to a focus on
economic dimensions of sustainability. This research demonstrates how members of a
subculture understand and enact sustainability within their organization in line with the
dominant subculture of the organization. While these studies do not directly measure
emotion they do demonstrate how the collective understanding of a group can
influence the course of action taken in response to environmental or sustainability
related issues.
Although research on organizational greening at the group level is scant, there is
one study that is particularly relevant. Welcomer, Gioia, and Kilduff, (2000)
demonstrated how emotion affected two groups in their negotiation of a significant
environmental problem. Welcomer et al. (2000) studied communications between the
developers of a hazardous waste facility and the community who would be located
near the facility. In their analysis of positive and negative emotions of stakeholder
groups they found that emotionality was an important dimension in the discourse
between communities and corporations. They found that the dominant negative
emotionality expressed in the community’s discourse clashed with the rational
discourse of the developers, resulting in poor communication outcomes. This study
highlights how the emotionality of an environmental issue can cause communication
between groups to break down, ultimately leading to the disruption and breakdown of
communication between two groups.
Although research at the group level was scant, the evidence does suggest that
group level emotions play an important role in the collective understanding of
sustainability and the depth and degree of uptake of pro-environmental behaviors.
Furthermore, Welcomer et al. (2000) showed that emotions are an important part of
the collective understanding of environmental issues. Research tells us that emotions
are contagious and spread among group members (Barsade, 2002), yet there is a lack
of knowledge about how emotional responses to environmental issues are spread
within groups. Emotions at a group level can influence individuals from the bottom-up
or top-down (Barsade & Gibson, 1998). Yet little is known about how to manage
emotions that arise in response to issues like climate change. For example, climate
change may provoke strong and divergent emotions of group members and these
different responses may lead to conflict. As emotional responses intensify, such
conflict becomes more difficult to manage. Further research at this level will be
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important in exploring the relationships between individual, group and organizationallevel emotions.
Level 5: Organization-Wide Emotions
The fifth and final level of Ashkanasy’s (2003) multi-level model of emotions is
the organizational level. This level of analysis is different from the other levels in that
at the lower levels of analysis organizational policies and practices can be interpreted
in the context of interactions between individuals and groups. In dealing with the
organization-wide or macro view, however, the situation becomes much less clear.
Although some interactions may indicate emotion at the organizational level it is much
less explicit. Rather, at this level of analysis it is necessary to deal with the emotional
climate of the organization; defined by De Rivera (1992, p. 197) as “an objective
group phenomenon that can be palpably sensed – as when one enters a party or a city
and feels an attitude of gaiety or depression, openness or fear.” The concept of the
emotional climate is quite separate from organizational culture in that the
organizational climate is essentially an emotional phenomenon, whereas culture can be
considered more stable and rooted in beliefs, values and embedded assumptions
(Ashkanasy, 2003; Ashkanasy, Wilderom, & Peterson, 2000).
Research of emotions at the organization level is a relatively new but growing area
within organization theory (Campbell, White, & Johnson, 2003; Madlock, 2008;
Voronov & Vince, 2012). One reason for the lack of research at this level is that
members of organizations may perceive emotions in a professional context as
irrational, leading to subjective and potentially unfavorable outcomes that lack
legitimacy (Fineman, 2000, 2003). Yet, as shown by Fineman (2000) and Ashkanasy
(2003), emotions and rationality are not exclusive but intertwined. They frame, for
example, the interpersonal interactions within organizations (Ashkanasy, 2003), how
an issue is interpreted (Sharma, 2000), or how an organization reacts to change in its
organizational field (Voronov & Vince, 2012).
Norgaard’s (2011) work provides evidence of individual- and organizational-level
emotional reactions in discourse around climate change. Her work demonstrates that
some organizations have strong emotional responses in their organizational climates.
These emotional responses, however, depend largely on the values and beliefs that are
collectively shared within the organization’s culture (Norgaard, 2011). Research by
Wright and Nyberg (2012) has also demonstrated the emotionality of climate change
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at the organizational level. In their research of large corporations, Wright and Nyberg
investigated how organizations define their response to the emotionology surrounding
the public discourse on climate change.
Unpredictable environmental events such as the BP oil spill in the Gulf of Mexico
in 2010 or the nuclear incident in Fukushima in 2011 can have a significant impact on
an organization and trigger a collective emotional response. In organizations, such
events can lead to anxiety as members experience disrupted work routines and
operations (Pearson & Clair, 1998). Such crises can trigger emotions such as anger at
those who caused events, guilt for those at fault, and hopelessness and despair at acts
of nature, or grief for what has been lost (James, Wooten, & Dushek, 2011).
In broader sustainability-related contexts, the effect of emotions is illustrated in
publications on issues of renewable energies (Sherry-Brennan, Devine-Wright, &
Devine-Wright, 2010), sustainable management practices (Branzei, Vertinsky, &
Zietsma, 2000; Sekerka & Stimel, 2012), as well as climate change (Norgaard, 2011;
Wright & Nyberg, 2012). The emotional climate that develops in response to an
environmental issue can influence how the organization addresses such important
issues. Sharma (2000) and Hoffman (1997) for instance, argue that the options
considered by an organization in response to a sustainability-driven change can be
limited by the emotional interpretation of it. Furthermore, Wright, Nyberg and Grant
(2012) state that the emotionology that develops within an organization in response to
an environmental issue like climate change has an influence on its strategic response.
Indeed, they noted that the discourses of ‘profitability’ and ‘shareholder value’
competed with the broader social discourse around ‘climate change’. The competition
between the organizational and broader social discourses influenced the emotionality
of the issue (Wright & Nyberg, 2012). The work of Hulme (2009) has extended this
notion from the organizational to societal level by suggesting that cognitive and
behavioral barriers prevent society as a whole from meaningfully responding to
climate change.
Fineman (1996) has also conducted research that is relevant to emotions at the
organizational level. Fineman (1996, 1998) investigated greening behaviors in
organizations and found that both positive and negative emotions played a strategic
role in the adoption of pro-environmental behaviors within organizations. In the more
environmentally proactive organizations he studied, he found that managers spoke of
positive emotions in relation to commitment to environmental issues, citing emotions
such as belonging, respect, awe, and loyalty. However, he also found that negative
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emotions, such as fear and embarrassment also played a role. In explaining these
findings he suggests that the most proactive organizations, and those with the highest
public profile, had the most to fear from public embarrassment. The managers in these
organizations had “invested their image and reputation in claims for environmental
care, loss of face could be a blow to role identity, to professional status within the
company and to corporate image” (Fineman, 1996, p. 491).
Managers from less environmentally committed supermarkets did not display the
same level of fear of embarrassment. Fineman (1996) suggested that these
organizations and their managers had, in effect, less to lose. As they did not claim to
be going beyond minimum levels of environmental compliance, they had no
environmental reputation to defend, and therefore believed they could not be
significantly embarrassed by public criticism (Fineman, 1996). Particularly, the role of
fear as described by Fineman suggests that managers’ displays of emotion were based
on their organization’s environmental paradigm and commitment.
While there is increasingly more research at this level of analysis, there is a lack of
understanding of the role and effect of emotions at the organization-level (Bell &
Taylor, 2011; Huy, 2012; Kangasharju & Nikko, 2009; Smollan & Sayers, 2009a). It
is clear that emotions affect decision-making (Bechara, Tranel, & Damasio, 2000), and
given the importance of organizational decisions to create and resolve environmental
issues, it is imperative that academics and managers gain a better understanding of
emotions on organizational level as they relate to organizational greening. We know
that emotions influence how an organization interprets an environmental issue
(Sharma, 2000), that environmental agents play a key role in defining an
organization’s emotionology around climate change (Wright & Nyberg, 2012), and
how emotions in response to an event that significantly distresses an organization can
affect its members (Pearson & Clair, 1998); yet more remains to be done. We identify
three key areas as priorities for research at this level of analysis. Research is needed to
examine, first, how emotions become part of the organizational climate; second, how
emotions influence the identity and culture of an organization; and third, how
emotions affect an organization’s response to environmental issues. A deeper
knowledge of these processes is necessary to understand the potentially critical role
that organizational-level emotions play in determining an organization’s culture,
identity, and environmental strategy. Furthermore, we suggest that one opportunity to
respond to this call is the application of individual-level psychological theories to the
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41
organization-level in order to enhance our understanding of organisational emotions
(Bowman, 1982; Shimizu, 2007; Staw, Sandelands, & Dutton, 1981).
The work cited above highlights a tension at the organizational level of analysis.
Indeed, while the level of analysis is at the organizational level there is also a
capturing of expressions of emotions at the individual level. Hence, the tension arises
between the micro, meso and macro levels of analysis. In the final section of this
chapter we outline these issues and offer a future agenda for research that may shed
light on the interrelationships between these levels and enhance understanding of how
emotion operates at all levels of analysis and can both enhance and impede
organizational greening efforts.
Cross-Level Emotions
One of the recurring themes throughout our review is the interconnectedness
between levels of analysis. In this section we highlight those studies that explicitly
examine cross-level emotions and effects. These studies illustrate the dynamic nature
of emotions and the interrelatedness of emotional variables across all levels of analysis
(Ashkanasy, 2003).
The findings from Bissing-Olson et al. (2013) demonstrate the importance of
considering multiple levels of analysis. Indeed, what Bissing-Olson et al. found was
that it was the relationship between fluctuations in emotion at the within person level
(Level 1) in conjunction with individual differences at the between persons level
(Level 2) that explained pro-environmental behavior within the workplace. More
specifically, they found that daily unactivated positive affect and pro-environmental
attitude positively predicted task-related pro-environmental behavior. Furthermore,
daily activated positive affect positively predicted daily proactive pro-environmental
behavior but only among employees with a less positive pro-environmental attitude.
These findings show that the emotions at the within-person level have an important
role to play as a driver of behavior at the individual level.
Wright and Nyberg (2012) have also demonstrated cross-level emotion effects.
Their research showed how sustainability professionals were key agents in the design
and implementation of a positive emotionology towards an environmental issue, thus
connecting the individual (Level 2) with the collective emotionology and within the
group (Level 4) and the organization (Level 5).
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The work of Norgaard (2006) connects individual (Level 2), interpersonal (Level
3) and group-level (Level 4) phenomena. She studied the reasons for climate change
denial by analyzing the reactions of individuals in a remote village in Norway in
response to climate change impacts. Her study outlines how an individual’s perception
of an issue is self-reinforced through interpersonal interaction and can lead to
collectively shared emotions and group-level reactions. She “attempts to highlight the
importance of these dimensions in a way that bridges the troublesome, yet nevertheless
artificial, gap between micro- and macro social processes” (Norgaard, 2006, p. 364).
In this way, Norgaard highlights how emotions can span levels of analysis and she
notes the somewhat false sense that our research can be categorized within one level.
While Bissing-Olson et al. (2013) and Norgaard (2006) show how emotions flow
from the micro to the macro level, Fineman’s (1996, 1998) work highlights processes
in the opposite direction. Indeed, what he found was that the type of organization
(proactive or reactive) (Level 5) helped to determine the sorts of emotional
expressions he observed when interviewing managers (Level 2) within those
organizations. Andersson and Bateman (2000) have also shown how the organizational
climate (Level 5) can influence how environmental champions go about selling
environmental issues within their organizations (Level 2).
Discussion and Further Research
A Future Research Agenda
In this chapter, we have examined the role of emotion in organizational greening
from the most micro level of emotional experience to the macro view of emotions as
they relate to organizational climate and culture. In this final section we aim to
emphasize three key themes that have come out of this review with the aim of setting a
research agenda for future work in this area. In particular, we emphasize the need for
future research to develop further in the exploration of emotions at macro-level
analyses, the examination of relationships across multiple levels of analysis, and the
exploration of emotion as a longitudinal process. We address each of these
implications for research in turn and conclude the chapter by outlining some of the key
implications for practice.
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43
Implications for Research
A key area for future research is the need to study emotions at more macro levels
of analysis. We note that there were far fewer studies at Levels 4 and 5 and this
warrants further attention. Indeed, while research on emotions in an organizational
context has gained more attention in recent years, studies examining the effect of
emotions on an organizational level remain scarce (Kangasharju & Nikko, 2009;
Voronov & Vince, 2012). In particular, we encourage future researchers to develop a
better understanding of the role of emotions at the organizational level (Huy, 2012;
Kangasharju & Nikko, 2009; Smollan & Sayers, 2009b). There remains a lack of
research on the processes leading to collectively shared emotions and their respective
effects on an organization’s culture, strategy, or identity. Therefore we suggest that
research that examines how emotions progress from the individual to the organization
and vice versa will be important in advancing understanding of how emotions affect
organizational greening.
One of the significant challenges in examining emotions at the macro level of
analysis is that it remains difficult to measure. It is more difficult to gather data that
validates the evolution of an emotional climate within an organization than it is to
gather data at the individual level. While psychologist have developed a number of
methods and tools to observe emotions on an individual-level, as indicated in the
literature we cite in Levels 1, 2 and 3, the gathering of data mirroring emotions that are
collectively shared at the organizational level presents a challenge for organizational
researchers. We suggest that the development and application of a set of tools to
measure emotions on an organization-level would allow a more comprehensive
understanding of the role of emotions in organizations in the context of organizational
greening. This could enhance understanding of the role of emotions in the
development of environmental strategies, on the perception and evaluation of
sustainability-related risks, or in the formulation of strategic responses to green
challenges.
The research we have described in the preceding sections shows that organizations
are inherently emotional places (Ashkanasy & Ashton-James, 2005; Elfenbein, 2007;
Voronov & Vince, 2012). We note, however, that, most of these studies focus on
emotion states at one point in time. While such research helps to further understanding
of the important role and effects that emotions can and do have in a management
context, these studies largely do not acknowledge the astatic nature of emotions.
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Medical studies draw a much more sophisticated picture of emotional reactions as
a process, rather than a state. Indeed, many of these types of studies investigate the
process of emotional change over time in relation to a specific issue or event. KüblerRoss (1969), for example, showed that in grief an individual goes through a process of
emotions including denial, anger, bargaining, depression and acceptance. Zell (2003)
argued that this process also applies to organizational change and thus demonstrates
that emotions can form a process rather than a state.
Especially with regards to organizational greening, a field where public,
governmental, and corporate perceptions and responses significantly changed over
time, there is a need to gain a better understanding of the role of emotions as they
change. Senge et al. (2006) noted that, “as people become more committed to
sustainability work, they will gain a deeper understanding of their own emotional
energy and their ability for contemplation”. Ashkanasy (2003) also recognized the
dynamic nature of emotion, yet to date we have not observed research that takes a
longitudinal perspective to examine the evolution of emotions over time as they relate
to organizational greening. We therefore call for further research investigating how
emotions evolved and their respective role in environmental change processes.
Finally, we suggest that research that crosses levels of analyses would be of
benefit in advancing knowledge in this area. A recurring theme throughout our chapter
is the interrelatedness of variables across all of the levels of analysis. Indeed, while we
have attempted to categorized the research studies into each of the levels of
Ashkanasy’s (2003) multi-level model, this categorization is somewhat false in that
many of the articles could be considered to span multiple levels. We have attempted to
highlight specifically when this occurs. For example, research by Bissing-Olson et al.
(2013) spans both the within person level of analysis (Level 1) and the between person
level of analysis (Level 2). Similarly, Norgaard’s (2011) work on climate change
discourses moves between the level of communication (Level 3), groups (Level 4) and
organizations (Level 5). These scholars highlight the complexity of studying emotion
and the interrelationships that occur between levels of analysis. We would encourage
further research that examines emotion both within and across all five levels of
analysis.
In summary, we argue that stronger integration of emotional theories is needed in
organizational greening research across all levels of analysis (Voronov & Vince,
2012). We argue that this is particularly important when considering environmental
issues, which have been demonstrated to be more emotional than other issues within
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45
organizations (Fineman, 1996, 1997; Pratt, 2000). Battilana and D’Aunno (2009) state
that organizational research has the two boundaries of a “rational choice model of
agency on one side and structural determinism on the other” (Battilana & D’Aunno,
2009, p. 73). Voronov and Vince (2012), however, note that this determination
neglects the importance of emotions and “their complicity with domination, and their
contribution to both reproducing and transforming the institutional order” (Voronov &
Vince, 2012, p. 73). The two are closely intertwined, yet despite their impact on an
organization-level they have not received much attention by organizational scholars
(Madlock, 2008). We argue that a much stronger consideration and integration of
emotional theories in organization studies is needed particularly in the consideration of
environmental issues in general, and climate change in particular.
Implications for Practice
In this chapter we have used Ashkanasy’s (2003) framework to illustrate how
emotions in organizational greening occur at all levels of analysis, from the most
fundamental level that includes fluctuations in day-to-day emotions of all employees,
through to the shared emotional experiences of organizational members that make up
the emotional climate of the organization. Research results to date show that emotions
are important determinants of pro-environmental behavior. Indeed, there is evidence to
suggest that the arousal of positive emotions is a significant determinant of workplace
pro-environmental behaviors (Bissing-Olson et al., 2013) and corporate social
responsibility (Andersson et al., 2007; Giacalone et al., 2005). These findings at the
micro-level suggest that there may be some efficacy in promoting positive emotions
when encouraging employees to engage in pro-environmental behavior. This could be
facilitated for example, by facilitating positive work events (Weiss & Cropanzano,
1996). Future research that tests this proposition would be beneficial in advancing the
practical relevance of this research and enhancing future intervention design.
There is also evidence to suggest that emotions are important in determining
career choice in organizational greening (Kearins & Sharma, 2007; Vining, 1992).
Once in a greening related career, it is also possible that emotional intelligence skills
may also be important for future success (Andersson & Bateman, 2000; Egri &
Herman, 2000). It is therefore possible that the success of environmental champions or
change agents might be improved by training in emotional competencies. Future
research that further examines the relationship between emotional intelligence and
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organizational greening success would be of particular benefit to change agents and
environmental champions.
Conclusion
In conclusion, the research we have described in this chapter demonstrates the
beginnings of a valuable stream of research in emotions and organizational greening.
There are many questions that remain unanswered and many opportunities for scholars
in this area to make a unique contribution to research and practice. Our aim in this
chapter was to review current research in emotions and organizational greening and to
set an agenda for future research in this burgeoning area. Organizational psychologists
and organizational behavior researchers have an important role to play in further
developing understanding how individuals and organizations can most effectively
respond to environmental issues. We hope that by setting this agenda we will
encourage more scholars to pursue research in this area and that their results have a
positive impact on the future practice of organizational greening.
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47
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Second Paper
Leading organizations through the stages of grief:
The development of negative emotions over environmental change6
Elmar Friedrich†, Rolf Wüstenhagen†
Abstract
This conceptual paper theorizes about the effect of emotions of individual
organizational leaders during a period of sustainability-related upheaval within an
industry. To illustrate the effect of emotions, it proposes to draw on the model of five
stages of grief by Elisabeth Kübler-Ross (1969), a conceptual framework describing
terminally ill patients’ responses to their impending death. The authors adapt KüblerRoss’ taxonomy and use anecdotal evidence from grieving top managers of energy
companies in response to the nuclear phase-out in Germany. The paper conceptualizes
the influence of emotions in the decision-making process of key agents in response to
institutional pressures in their field. The paper suggests that focusing on emotional
influences will add an important dimension to the analysis of sustainability strategies,
and discuss implications for further research at an individual and organizational level.
Keywords: Emotions, stages of grief, organizational change, risk perception,
corporate sustainability, nuclear energy, energy policy
6
Earlier versions of this paper were presented at the Gronen Conference 2012, June 26-29, 2012,
Marseille, France; the 19th Annual International Conference on Advances in Management & 5th
International Conference on Social Intelligence, July 18-21, 2012, Nassau, Bahamas. Accepted at
Business & Society.
†
Institute for Economy and the Environment, University of St.Gallen, Switzerland.
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Introduction
Research on corporate environmental strategies shows that an individual’s
perception of sustainability-related issues significantly affects whether a company
moves towards a greener path or not (Hoffman, 1997; Pulver, 2007; Sharma, 2000).
While logic and rationality influence our perception of an issue, neuroscientific studies
indicate that emotions play a similarly important role (Bechara, Damasio, & Damasio,
2000). Fineman (1996, 1997), Pratt (2000) and Wright and Nyberg (2012) have argued
that “green” challenges are likely to lead to a more emotional interpretation of an issue
than other topics. This finding is often illustrated in the public discourse around
sustainability-related issues, which demands rationality yet often leads to emotionally
heated debates. This is particularly important given the mega challenges organizations
face in a sustainability context: climate change, food and water scarcity, environmental
pollution, overpopulation, ocean acidification, and the loss of biodiversity are all
intertwined in a complex system which is stressed to and beyond its limits.
Organizations are part of the problem and the solution, respectively it is important to
understand how their leaders address these issues and how emotions affect their
decisions. Following cognitive theory, emotions affect if we perceive an issue as threat
or opportunity (Sharma, 2000), how we cope with changes of the organizational
environment (Bell & Taylor, 2011; Blau, 2006, 2007, 2008; Harris & Sutton, 1986;
Hazen, 2008; Zell, 2003), or how we evaluate risks and benefits (Alhakami & Slovic,
1994; Loewenstein, Weber, Hsee, & Welch, 2001; Peters, Burraston, & Mertz, 2004).
Emotions can be defined as strong reactions in response to a decisive event
(Frijda, 1986; Scherer, 2000; Russell & Griffiths, 2008). One of the strongest emotions
7
we experience in response to an event is grief . It is often triggered by the loss or
impending loss of an important aspect of life, for example the loss of a loved person or
our own impending death. Kübler-Ross (1969) introduced a model to explain the
different stages of grieving, which an individual can go through after a decisive event,
until reaching a stage of accepting a new reality. In management research, several
studies used the stages theory of grief and researched grieving in the context of
7
We thank Steven W. Running (2007) for his pioneering blog piece on The 5 stages of climate grief
(original link: http://www.ntsg.umt.edu/5-stages-of-climate-grief, for a recent quote, see, for
example:
http://www.huffingtonpost.com/daphne-wysham/the-six-stages-of-climate_b_1852425.html).
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worksite closure (Blau, 2006, 2007, 2008; Harris & Sutton, 1986), project failure
(Shepherd, Covin, & Kuratko, 2009; Shepherd & Kuratko, 2009; Shepherd, Patzelt, &
Wolfe, 2011), or organizational death (Bell & Taylor, 2011).
Drawing on insights from psychological literature on grief, this paper makes two
contributions. First, it elaborates on the role of emotions on managerial decisionmaking. An increasing number of studies focusing on the effect of emotions in
management outlines that organizations are inherently emotional places (Ashkanasy &
Ashton-James, 2005; Elfenbein, 2007; Voronov & Vince, 2012), yet the literature on
the effect of emotions in response to institutional pressure and their effect on decisionmaking is rather limited (cf. Russell & Griffith, 2008; Voronov & Vince, 2012). This
relative lack of research on emotions in a management context means that studies of
decision-making processes of top executives in organizations may have excluded an
important factor (Ashforth & Humphrey, 1995; Barsade, Brief, & Spataro, 2003;
Russell & Griffiths, 2008; Voronov & Vince, 2012). The paper addresses this gap and
connects findings from psychologists on decision-making with insights from
management studies. Concretely the paper reviews the literature on emotions and risk
perception and outlines where the two are connected. Based on findings from
psychological and neurological studies, it outlines that management research largely
overlooks an important factor, the effect of emotions on the decision-making of senior
executives. This is particularly important in a sustainability-context, as many
environmental discourses are controversial and emotionally charged.
Second, the paper theorizes about how the evolution of emotions over an issue and
over time affects the perception of organizational leaders of an issue. There are few
studies focusing on emotions in a management context and even fewer acknowledge
the astatic nature of emotions over time. Most management studies in this field focus
on one particular emotional state like denial (Norgaard, 2006; Agocs, 1997), happiness
(cf. Fisher, 2010; Lyubomirsky, King, & Diener, 2005), or anger (Geddes & Callister,
2007). To outline the process of emotional evolution over an issue and over time, the
paper adapts the stages theory of grief of Kübler-Ross (1969) and applies it on a
sustainability-related context. The paper theorizes about the effect of grieving on the
ability to change an organization in response to an issue along the stages of grief from
initial denial to final acceptance. To illustrate our theory, we use anecdotal evidence
from top executives within the electricity industry in Germany, which allows us to
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outline the effects of the different grieving stages an individual goes through in a
sustainability-related context.8
This article has implications on research and practice. It discusses the theoretical
implications of the conceptual work, which to our knowledge is the first paper
theorizing the effect of grieving leaders over a change in the organizational field on
their perception of the organization’s position in the market. Namely, the paper
discusses how the findings might help to explain behavioral phenomena connected to
the evaluation of an issue as threat or opportunity, the perception of an organization’s
position in its field, and path dependence.
This study also has implications for practitioners. Kübler-Ross (1969, p. 152)
states “our goal should always be to help the patient and his family face the crisis
together in order to achieve acceptance of this final reality simultaneously”. This
adaptation of her work strives to help top executives, consultants and academics to
better understand the implications of grieving leaders in a context of institutional
change and the potential implications on an organization’s strategy. The article
discusses how grieving can be addressed in organizations and drawing on insights
from bereavement services, it suggests how to moderate the negative implications of
grieving leaders.
Finally the article outlines ways how to empirically test the proposed theory and
how to further develop the field. Consecutively it reviews research on emotions and
decision-making and how these streams are intertwined.
Literature Review: Emotions, Management and Sustainability
Sustainability, Cognition and Decision-Making
Climate change, fossil fuel scarcity and environmental pollution among others are
three sustainability-related key issues that do or will affect every organization to some
extent. These issues increasingly lead to the societal expectation that organizations
need to develop environmental strategies to address these global challenges (Sharma,
2000; Jennings & Zandbergen, 1995). Institutional theorists argue that senior
8
While we are not aware of any previous academic publication linking the stages of grief to
sustainability management, we acknowledge inspiration from Steven W. Running (2007) and his
pioneering blog piece stages of climate grief (http://www.ntsg.umt.edu/5-stages-of-climate-grief).
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executives need to respond to such environmental pressures as these pressures imply
significant risks and benefits for the executive’s organization (Desai, 2011; George,
Chattopadhyay, Sitkin, & Barden, 2006; Puffer & McCarthy, 2011; Suddaby &
Greenwood, 2005). The public discourse around climate change for example results in
changing social norms (Shove, 2010), new customer preferences (Mansur,
Mendelsohn, & Morrison, 2008), and disruptive innovations (Fankhaeser, Sehlleier, &
Stern, 2008), which might consequently disfavor existing business structures and lead
to upheaval in the organizational field (Okereke, Wittneben, & Bowen, 2012; Kolk &
Pinkse, 2004). In certain situations, changing institutional demands can ultimately lead
to organizational paralysis or breakup (Gilbert, 2006; Henderson & Clark, 1990;
Levinthal, 1991; Pache & Santos, 2010; Tushman & Anderson, 1986). The
international ban of the ozone-depleting gas chlorofluorocarbon in 1989 for example
led to significant changes in the respective market, with winners and losers in the
industry (McKibbin & Wilcoxen, 2002).
How an organization responds to changes in the institutional environment is
triggered by external and internal factors (Oliver, 1992; George, Chattopadhyay,
Sitkin, & Barden, 2006). Studies examining external factors researched organizational
responses to institutional change (Lawrence, Hardy, & Phillips, 2002) and how
resources and capabilities of organizations affected these responses (Casile & DavisBlake, 2002; Kostova & Roth, 2002). Less attention was paid to internal factors that
shape organizational responses to institutional pressures (George, Chattopadhyay,
Sitkin, & Barden, 2006). Senior executives of organizations are key agents who
determine the strategic directions of organizations in response to change in the
institutional environment (Elsbach & Sutton, 1992; George, Chattopadhyay, Sitkin, &
Barden, 2006; Johnson, Smith, & Codling, 2000). Studying the cognitive processes of
these agents is an important yet often-overlooked element of institutionalism
(DiMaggio, 1991; DiMaggio, 1997). In fact, gaining a better understanding of the
cognitive underpinnings of organizational decision-makers and respective behavior
may be key to the further development of institutional theory (George, Chattopadhyay,
Sitkin, & Barden, 2006; Hoffman, 1999; Voronov & Vince, 2012).
In management research, a vast body of research shaped and enhanced our
knowledge about the cognitive underpinnings of individuals confronted with risks and
the influence on their decision-making. Kahneman and Tversky (1979) tested how
individuals use heuristics such as availability, representativeness, and anchoring to
make decisions. Payne, Bettman, and Johnson (1992) analyzed cognitive decision-
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making strategies through models of constructed preferences, and Shafir, Osherson,
and Smith (1993) elaborated how comparative strategies influence an individual’s
response to risk. Empirical research on managerial interpretations of events indicates
that the risk perception of senior executives depends on rational factors such as the
degree to which these executives can control an event or gain and loss considerations
(Chattopadhyay, Glick, & Huber, 2001; Thomas, Clark, & Gioia, 1993; Thomas &
McDaniel, 1990). The study of these economic factors and their influence on
individual risk perception and decision-making formed a large field of management
research, which advanced our understanding of phenomena in individual and
organizational behavior and influenced practices in the industry. More recent studies
indicate that beyond economic rationality, management scholars need to investigate
how emotions influence the perception and interpretation of risk by top executives
(Campbell, White, & Johnson, 2003; Madlock, 2008; Voronov & Vince, 2012). One
reason for the lack of research at this level is that members of organizations may
perceive emotions in a professional context as irrational, leading to subjective and
potentially unfavorable outcomes that lack legitimacy (Fineman, 2000, 2003). Yet, as
shown by Fineman (2000) and Ashkanasy (2003), emotions and rationality are not
exclusive but intertwined. They frame, for example, the interpersonal interactions
within organizations (Ashkanasy, 2003), how an issue is interpreted (Sharma, 2000),
or how an organization reacts to change in its organizational field (Voronov & Vince,
2012). This article responds to the call to develop conceptual models to further
integrate the study of emotions in the research of managerial risk perception and
decision making. A neurological study by Bechara (2004) examined the influence of
decision-making in patients who can no longer process emotional information
normally. Her results suggest that decisions are not derived from an evaluation of
potential future outcomes through some type of cost-benefit analysis. She states that
“people make judgments not only by evaluating the consequences and their probability
of occurring, but also and even sometimes primarily at a gut or emotional level”
(Bechara, 2004, p. 30). These findings underline the significance of emotions when
evaluating threats and opportunities and deciding about investments and strategies.
The results of the neurological experiment show that emotions are not just one
influencing factor but a decisive element of the decision-making process and add a
further dimension to the ongoing debate on individual risk perception.
This conceptual paper contributes to this growing field by developing a model
outlining the effect of negative emotions over change after an influential event in the
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organizational field. The model further proposes how the evolution of these emotions
over time affects the evaluation of the event as threat or opportunity. This paper
thereby intends to add a further emotional perspective to the rational dimensions of
research on risk perception and decision-making. Before introducing the model the
article reviews the literature on emotions and their impact on cognitive processes of
key agents in organizations.
Emotions and Change
We react more positively to changes that are in line with our beliefs and norms
and tend to deny the ones that are against them. Applied to the leadership team of an
organization, emotions can be phrased as the collective emotional response to an
event. Emotions that are collectively shared are similar to emotions on individual
level, but involve a large number of people who share a similar emotional response
with regard to a certain event or decision (Huy, 2012; Shepherd, Patzelt, & Wolfe,
2011). In institutional research, the importance of emotions in management has been
conceptualized from different angles and perspectives (George, Chattopadhyay, Sitkin,
& Barden, 2006; Voronov & Vince, 2012) and becomes evident in a number of studies
that researched the role of emotions in the context of business communication
(Compton et al., 2008), motivation (Campbell, White, & Johnson, 2003),
organizational culture (Smollan & Sayers, 2009), stress (Wang, 2011) or recovery
from project or business failure (Shepherd, 2003; Shepherd,Covin, & Kuratko, 2009).
In sustainability related research, the role of emotions in the context of corporate
sustainability is illustrated in the debate about climate change (Norgaard, 2011),
renewable energies (Sherry-Brennan, Devine-Wright, & Devine-Wright, 2010), or
sustainable management practices (Branzei, Vertinsky, & Zietsma, 2000; Sekerka &
Stimel, 2012). While these studies advance our understanding of the role of emotions
in a sustainability related context, they lack a focus on how emotions evolve and
instead review one particular emotional stage. Moreover research on the effect of
negative emotions on the decision-making process of key agents within an
organization is still lacking. The study of emotions is prominent in psychology (cf.
Bowlby, 1961, 1980; Kübler-Ross, 1969) and sociological research (Hochschild,
1979). While both disciplines differ in their interpretation and application of emotions,
they are aligned by the idea that emotions shape our cognition and decision-making
and define the options an individual considers (Bechara, Damasio, & Damasio, 2000).
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Emotions result from cognitive processes in response to an event that is of significance
for a person (Lazarus, 1991; Scherer, 2000; Elfenbein, 2007). Our emotions in
response to change are determined through a cognitive process, where they are
interpreted as favorable or unfavorable (Lant & Mezias, 1992; Lant & Milliken, 1992;
Shore et al., 2004). Emotions are defined as “an episode of interrelated, synchronized
changes in the states of all or most of the five organismic subsystems in response to
the evaluation of an external or internal stimulus event as relevant to major concerns
of the organism” (Scherer, 2001, p. 93). Radical change is one of the triggers for
emotions (Huy, 2012; Smollan & Sayers, 2009), often leading to transformation
processes in order to cope and adapt to this change. Emotions play an important role in
this process as they reduce the options considered, which is supported by research on
managerial interpretations of environmental issues (Sharma, 2000; Hoffman, 1997).
Conceptual Framework: Five Stages of Grief
Grieving is a subjective emotional process in response to an irretrievable or
impeding loss that may be made manifest in mental, physical or social expression
(Charmaz & Milligan, 2008) and is defined as “to cause to be sorrowful”(Webster,
2001, p. 489). Grieving is a common response to significant change and losses
(Clinebell, 1984) and may be expressed through individual or collective mourning.
This paper draws upon one of the most well-known theories of grieving, the stages
theory of grief as described by Kübler-Ross (1969).The origins of the stages theory of
grief date back to Sigmund Freud (1917) and his influential article about “Mourning
and Melancholia”. Elisabeth Kübler-Ross (1969) drew upon that idea and developed
the stages theory of grief. By studying the response stages of terminally ill patients to
awareness of their impending death, she identified five distinct psychological stages of
grief: denial, anger, bargaining, depression, and acceptance. Denial is the first emotion
an individual experiences, as a result of the “shock” from receiving the news of
change. Kübler-Ross (1969, p. 39) described denial as a “buffer” after unexpected
news (“I can't believe….”). The following anger stage is marked by the experience of
resentment and frustration, which may be directed towards the person or institution
triggering these feelings. In the bargaining stage, the individual acknowledges the
seriousness of the situation yet tries to negotiate for more time or better conditions.
The fourth stage, depression, is characterized by intense mourning about the
individual’s poor condition and better days in the past. Eventually the individual
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reaches a stage of acceptance by acknowledging the inevitability of the new reality.
Reaching a stage of acceptance is vital for an individual’s ability to learn from the
process and move on. These stages are neither distinct nor similar experienced but
differ depending on circumstances, preconditions, and support mechanisms. However,
following Jacobs (1993), a deviation from this pattern requires therapeutic support to
prevent or handle chronic or complicated grief reactions.
While the model is widely accepted among psychologists and the general public
(Downe-Wamboldt & Tamlyn, 1997), and applied in bereavement services around the
world (Bergman, Haley, & Small, 2010), its validity is questioned. Researchers from
different disciplines like Walter (1999), Bell and Taylor (2011), and Maciejewski,
Zhang, Block, and Prigerson(2007) could not validate the model in empirical studies,
yet all acknowledge its value and practicality in medical services. Despite the lack of
empirical validation, we believe the original model of Kübler-Ross (1969) holds an
inherent conceptual value that allows us to gain a better understanding of the evolution
of emotions in managerial decision-making. The model proved to enhance our
understanding of the emotional stages an individual goes through in different contexts
ranging from grieving about a break-up (Kübler-Ross, 1969) to organizational death
(Bell & Taylor, 2011). In a business context, Blau (2008) empirically validated a
slightly adapted model in the context of anticipated job loss research. This paper uses
the model as an illustration of the evolution of emotional responses of executives in
the light of radical change affecting their business environment. More research testing
its validity, especially in a sustainability-related context, is required.
In management research, the grief theory is applied in several studies, for example
to explain the recovery process after entrepreneurial business failure (Shepherd, 2003),
employee responses to an anticipated worksite closure (Blau, 2006, 2007, 2008), and
project failure in corporate innovation (Shepherd & Kuratko, 2009). To study
emotions is very relevant to understand and address the interpretation of sustainabilityrelated issues like climate change or resource scarcity. There are often heated public
debates and discursive individual and organizational responses to “green” challenges
(Fineman, 1996, 1997; Pratt, 2000; Wright & Nyberg, 2012). Norgaard (2006) studied
how individuals within a community that is significantly affected by climate change
respond to the threat and analyze the cognitive underpinnings of climate change
denial. Her study “attempts to highlight the importance of these dimensions in a way
that bridges the troublesome, yet nevertheless artificial, gap between micro and macro
social processes” (Norgaard, 2006, p. 364). Her findings show that an emotional
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response to environmental risks is influenced by rationale as well as the social
discourse surrounding the issue.
This paper follows the argumentation of Russell and Griffiths (2008) that the role
of emotion of top executives in response to sustainability-related challenges needs
further attention and will enhance our understanding of decision-making processes in
organizations. In contrast to most other studies, this paper does not focus on one
particular emotional state but acknowledges the unsteady character of emotions. It
aims to conceptualize how emotions such as climate denial can evolve with time. The
idea is reflected in figure 2, representing the moderating effect of the different grieving
stages on the managerial perception of their organization’s position in the market.
Emotional Stages
Denial
Anger
Bargaining Depression Acceptance
Positive
Managerial
perception of
an
organization’s
position in its
market
Negative
Time
Figure 2: Hypothesized effect of emotions on managerial perception of an organization’s
position in its market through the five stages of grief
Source: Adapted from Kübler-Ross (1969).
Following the theoretical model of Kübler-Ross (1969), the x-axis represents time
and is segmented into the five stages of grief, denial, anger, bargaining, depression,
and acceptance. Different to the original model, the y-axis of our model does not show
self-esteem but how the perception of an executive of the position of their organization
in its market in response to a decisive event evolves. The curve illustrates the change
in perception along the different stages and follows a similar route as in Kübler-Ross’
(1969) description of the fluctuation of one’s self-esteem along the stages of grief.
This paper proposes, similar to Kübler-Ross’ (1969) focus on self-esteem, that an
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executive’s emotions evolve in a similar order like an individual’s emotions coping
with the loss of a beloved person.
In the initial denial stage, the executive perceives that the organization’s position
in its market has improved as she/he ignores the negative implications of the event and
overrates the organization’s resources and capabilities. In the anger stage, the manager
becomes more aware of the limitations of the organization and the implications of the
event. The anger is directed at the ones she/he thinks are responsible and blames them
for the event, like policy makers, politicians, engineers, customers, non-governmental
organizations, or other managers. The perception of the organization’s position in its
market further deteriorates during the bargaining stage and reaches its lowest level in
the depression stage. The manager might find it more difficult for the organization to
cope with the change despite first efforts to react. Depending on the magnitude of the
event, the manager realizes that there is no easy restoration and that the event has
major implications on the organization. Eventually the individual accepts the new
reality and works on strategies how the organization can benefit from the event in the
current market. This hypothesized effect connects to the work of Shepherd (2003),
who argues that the likelihood to learn from project failure increases with time during
a grieving process.
The model draws upon a qualitative study by Zell (2003), who studied the
resistance to change in universities through interviews with professors in a physics
department. He found that an organization’s change process evolves along the stages
theory of grief and argues “both individuals and the organization as a whole moved
through the process of change roughly in the sequence outlined by Kübler-Ross” (Zell,
2003, p. 79). In fact, already Kübler-Ross (1969) suggested that her model applies to
different forms of catastrophic personal loss, for example the loss of one’s job,
freedom, or partner. As argued by Marris (1974), radical change and loss are similar as
both can trigger an individual’s grieving process. In a number of industries
sustainability-related issues significantly influence the field in which an organization
is operating (Hoffman, 1999; Newman, 2000). Psychologists suggest that an individual
has to go through all stages of grief to sufficiently cope with a dramatic change event
(Jacobs, 1993). However, these stages are often not clearly distinct, nor does every
individual go through them in the proposed order – just like the grieving process is
different for every individual depending on the circumstances and preconditions
(Maciejewski, Zhang, Block, & Prigerson, 2007). Depending on internal and external
factors, an individual experiences a different intensity of her/his emotions in response
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to an event. In accordance with the findings of Kübler-Ross, we do not suggest that the
proposed moderating effect is found in all individuals to a similar extent. She notes
that “others might (and probably will) adopt a different terminology when describing
the phases through which the dying patient passes in the course of his illness. Since
individual variation is so great, it is unlikely that any one conceptual system could be
applied to all. But the overall picture, and the illustrative examples on which it is
based, must stand" (Kübler-Ross, 1969, p. VIII). Based on her findings, the proposed
model is a first attempt to conceptualize the evolution of emotions over an issue and
how it affects a manager’s interpretation of their organization’s position in the market
and ability to change it.
We suggest that a number of current behaviors within industries reflect the
proposed model. In the automotive industry, executives who are faced with the
potential “death” of the internal combustion engine, as electric cars might replace it
over time, do not or only slowly adjust their organization to the future market. The
results of a recent industry survey among top executives about the future of the
automotive market outline that market experts expect only six major players to sustain
over the decades, one of them the electric car company Tesla (KPMG, 2014). To
further illustrate the evolution of the different emotional stages and how they affect
managers’ perception of their firm’s position in the market and their ability to change
their organization, the German energy industry during a phase of radical change in its
organizational field serves as an example.
Illustrative Case: German Energy Companies confronted with
Nuclear Phase-Out
The Fukushima nuclear accident in 2011 sharply accelerated a long-term trend in
Germany (Wüstenhagen & Bilharz, 2006) to move away from nuclear power and
towards a higher share of renewable energy. Half of Germany’s 17 reactors were shut
down within three months after the Fukushima disaster, and the government decided to
retire the remaining nine plants within ten years. This upheaval in the institutional
environment led to significant challenges for incumbent utilities. The far-reaching
policy changes implied that the firms needed to reinvent their corporate strategy, while
at the same time losing their existing cash-cows. At the same time, the opportunities in
renewables looked more promising almost overnight, and stock markets priced in the
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new realities within days, sharply discounting the share prices of companies with
exposure to nuclear relative to renewables, see figure 3.
Figure 3: Stock price reactions to the Fukushima Daichi nuclear accident
Source: Ferstl, Utz, and Wimmer (2012).
As will be explored in more detail below, reactions from management of
incumbent utilities were very different from the fast reactions to new risk-return
profiles as they were reflected in stock markets. They ranged from defeatists’
comments about the short-term nature of the policy changes to threats of legal action
against the government. It took several months for more constructive voices to become
prominent in the debate. Given the fundamental threats to the firms’ existing business
models, however, one would think that there was a strong case for immediate action.
Instead, there seemed to be evidence for factors beyond pure risk-return considerations
- including emotions - that influenced corporate responses to upheaval in the
institutional environment.
The effect of grief is expressed through emotions, actions, and words (KüblerRoss, 1969). Statements of senior executives as key agents open a window revealing
some of an organization’s inner issues. According to the research of Kübler-Ross,
different senior executives within the industry respond differently to events, depending
on internal and external factors. In her study, Kübler-Ross found that "different
patients react differently to such news depending on their personality makeup and the
style and manner they used in their past life. People who use denial as a main defense
will use denial much more extensively than others. Patients who faced past stressful
situations with open confrontation will do similarly in the present situation" (KüblerRoss, 1969, p. 28). Similar to her findings, contradictory reactions from different
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individuals in an industry might be found in response to the same environmental
pressures. Yet, the overarching tone within the energy industry in response to an issue
supports this illustration. The following paragraphs describe each of the five stages in
greater detail and illustrate it with anecdotal evidence from top managers of large
German energy incumbents.
Denial
We suggest that the initial reaction to imposed transformation is denial. In the
denial stage, one is unwilling to admit the change and its effect on one’s life. A typical
response would be “I feel fine” or “This is not happening” (Kübler-Ross, 1974). In the
context of the intended policy adaptations affecting the German energy industry, a
manager of one of the big utilities was quoted four weeks after the Fukushima accident
as saying “The short-term phase-out of nuclear power is impossible, simply for
reasons of security of supply” (AMS, 2011). Other prominent German industry leaders
stated that “what happened in Fukushima cannot happen here” (SZ, 2011), which
reflected pre-Fukushima convictions that “German nuclear power plants are among the
safest in the world” (Stern, 2007). Similar to the original context of the stages of grief,
reactions in this phase tend to be rather passive, and as a result organizations in denial
mode are unlikely to embark on new strategies.
Anger
When a grieving individual or organization realizes that the change cannot be
denied any longer, it enters the second stage of grief, which is anger, rage, envy, and
resentment. According to Kübler-Ross (1974), typical expressions in this stage are
“This is not fair” or “Who is to blame”. Translated into the language of Germany’s
energy incumbents in the light of the Post-Fukushima industry transformation, angry
reactions by managers included statements like “there is no thought-through concept”
and “there is a total lack of a long-term perspective” (AMS, 2011). One utility chief
executive also joked about the solar power generation, saying that “photovoltaics in
Germany makes as much sense as growing pineapple in Alaska” (Merkur, 2012) – an
assessment that was fundamentally revised by his successor only a few months later.
As in other grief processes, managers tend to show active reactions in this phase, but
their emotional energy is not yet directed towards solutions.
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Bargaining
"I understand I will die, but if I could just do something to buy more time..."
would be a typical phrase marking the bargaining stage. Individuals try to bargain for
more time or improved conditions to better cope with the change. In the case of the
German energy industry, the bargaining stage is well exemplified in attempts by the
large utilities to influence the increasingly inevitable changes in the institutional
environment to their favor. One strategy is to prepare the public for rising electricity
prices, which would take away some of the margin pressure from utilities. For
example, one utility CEO said “electricity prices will increase by 30 per cent” because
of investments required by the new energy policy in the order of 150 billion Euro, and
went on to point out that “the majority of those costs will be added to electricity bills”
(SZ, 2011). Another utility CEO even publicly said “the cost of the energy transition
are in the order of magnitude of 250 to 300 billion Euro” (Merkur, 2012). Another
attempt to bargain for advantages over other players can be seen in utility firms’
lobbying for relative increases in feed-in tariffs for offshore wind parks (which are
mostly planned and operated by major utilities), while at the same time complaining
about prohibitive cost of feed-in tariffs for photovoltaics (a sector that is largely in the
hands of their competitors).
In this phase, a common communication pattern is “yes, but...”. Consider the
following interview statements by a German utility CEO: “The energy transformation
as a long-term objective is quite right. What I am missing is a sensible regulatory
framework for the energy market. And therefore, the course we are currently pursuing
is very expensive. (...) From a technical point of view, the nuclear phase-out is
manageable. But the question is whether electricity remains affordable for consumers
and industry. And there I am more skeptical.” (Handelsblatt, 2012a). During this stage,
the emotional response becomes more neutral towards the change, as hopes and fears
are balanced.
Depression
During the depression stage, a person realizes the loss of an important part of
her/his life. It is the time when a person faces the truth about the consequences of the
change and feels hopelessness and sadness about the future. Of the five stages of grief,
this one is probably the hardest one to back up with statements of utilities, as
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69
depressive public statements of managers are rare. However, anecdotal evidence from
industry conferences in late 2011 and early 2012 shows that some industry
representatives painted a rather bleak picture of their firms’ prospects under the new
institutional conditions, highlighting the downside risks more than the new
opportunities. The head of the Federation of German Industries (BDI) warned that the
new energy policy meant that Germany was about to “run blindly into a crisis” (Welt,
2012). When the Federal Environmental Minister Peter Altmaier in fall 2012 called for
an end to “badmouthing the energy transition” (dapd, 2012), he provided an indication
that BDI’s wording reflected more than a singular statement, and that negative
emotional responses could be an obstacle to grasping new strategic opportunities.
Acceptance
The acceptance stage is marked by an adaptation towards the new environment
and more positive feelings towards it, yet as Kübler-Ross notes, “acceptance should
not be mistaken for a happy stage” (Kübler-Ross, 1969, p. 100). Quotes illustrating
these emotions are "It's going to be okay" or "I can't fight it, I may as well prepare for
it". On an organization-level, actions outlining this stage could be a strategic
redirection towards the new environment and quotes about business opportunities
connected to it. In fact, as the dust began to settle a year after the policy changes in
Germany, we noticed statements reflecting more positive emotional reactions. The
CEO of a large German industrial firm stated in September 2011 “this chapter is
closed”, alluding to his firm’s decision to exit the business of building nuclear reactors
(Handelsblatt, 2012a). The chief executive of a large utility followed half a year later
saying “Germany has decided with a clear majority [to phase out nuclear power]. We
have to accept this.” As a consequence, he said, “we came to the conclusion that
investing in renewables, distributed generation and energy efficiency is more
attractive” (Handelsblatt, 2012b). Similarly, an industry peer, whose predecessor was
the one comparing solar energy in Germany to growing pineapple in Alaska, said:
“When it comes to photovoltaics, we are currently in a phase of reassessment. Prices
for solar modules have come down at a rate that our company deemed unthinkable a
few years ago. It would therefore be unwise for us not to address this topic”
(Handelsblatt, 2012c).
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Discussion, Implications and Further Research
Based on literature from psychology and institutional work this article has
proposed a conceptual model that highlights the role of emotions during an
organizational transformation process. It responds to calls from organization theorists
to further research the effects of emotions during an organizational transformation
process (George, Chattopadhyay, Sitkin, & Barden, 2006; Pache & Santos, 2010;
Voronov & Vince, 2012). Findings from psychologists suggest that emotional
responses of executives to changes in the organizational field are not static, but evolve
over time through the change process. The evolution of emotions can be segmented
along the five stages of grief (Kübler-Ross, 1969), suggesting that managers show
signs of emotional reactions to change that go from denial to anger to bargaining to
depression until they finally reach a stage of accepting the new environment. The
grieving process is expressed through emotions, which are reflected in actions and
words by an organization’s leadership. It affects the grieving individuals in their risk
perception and the ability to change the organization to a new environment, for
example after a new policy or major accident.
We acknowledge that every individual handles and expresses emotions differently.
The moderating effect of emotions on the managerial perception of their
organization’s position in the market and their ability to change the organization is
likely to fluctuate depending on different personal and environmental factors, for
example if there are supportive mechanisms and services emplaced that assist an
individual along the change process. In Kübler-Ross’ research context for example,
these services included specially trained medical staff that supports the grieving
process of patients. In her study she found that “during these crucial days or weeks it
depends a great deal on the structure and unity of a given family, on their ability to
communicate, and on the availability of meaningful friends. A neutral outsider, who is
himself not emotionally over-involved, can be of great assistance in listening to the
family's concerns, their wishes, and needs” (Kübler-Ross, 1969, p. 142). In a
management environment, this could be a consultant, coach or external advisor who
supports key agents in coping with an issue. On the contrary, negative influences like a
collective denial of an event, for example by relatives in the medical context and by
other senior executives in managerial grief, could extend or even intensify the grieving
process. Figure 2 illustrates the effects of managerial grief on the perception and
ability of key agents to change the organization.
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We further propose that as emotions over an issue change over time, so does the
ability of an executive to change the organization towards a new environment.
Managers are more willing to change an organization towards new institutions when
they emotionally favor a change in the organizational field (Sharma, 2000). The ability
to learn from grieving helps managers to develop themselves and change the
organization they work for (Shepherd & Kuratko, 2009). In the denial stage, an
executive’s ability to change the organization is low and inversely related to their
perception of the organization’s position in its market. While the individual is in
denial, the higher the perception of the organization’s position, the lower the ability of
a manager to change the organization to fit a new environment. This hypothesized
effect derives from research on path dependency, where managers become more
resistant to change the higher their perception of the organization’s resources and
capabilities (cf. Baum & Silverman, 2001; Liebowitz & Margolis, 1995). The anger
stage is characterized by a rising ability to change the organization as the perception of
the organization’s position in its market lowers. The manager tries to address the
challenge in a first attempt, for example by launching a new project or allocating
limited resources. During the bargaining stage, the individual realizes that the first
attempt to change the organization was insufficient to significantly improve its
position in the market. The manager is confronted with increasing institutional
pressure on current practices, services, or products and potentially new competitors
who grasp new opportunities in the market. During this depression stage the ability to
change the organization and the perception of the organization’s position in its market
both become lower. When a leader finally reaches the stage of accepting the change in
the organization’s environment, her/his ability to change the organization increases.
This opens a window of opportunity for creating a new path for their organization,
which could become evident in the development of new strategies or the allocation of
resources to new technologies, markets, services or products. This hypothesized effect
connects to research on bandwagon theories of collective action (cf. Abrahamsom &
Rosenkopf, 1993; Granovetter, 1978), which suggests that large-scale change of
organizations often begins with changes in the perception and behavior of a small
number of key actors (Garud & Karnøe, 2001).
Our conceptual model also contributes to research on managerial interpretation of
an event as threat or opportunity. The more a key agent interprets an event as an
opportunity, the more likely she/he is to strategically direct the organization towards
that direction. In a study analyzing the choice of environmental strategies, Sharma
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(2000) finds that positively interpreted environmental changes stimulate opportunityseeking behavior rather than threat aversion. George, Chattopadhyay, Sitkin, and
Barden (2006) propose that senior executives’ interpretations of an issue as threat or
opportunity are translated into organizational actions. Dutton and Duncan (1987) and
Jackson and Dutton (1988) note that gain or loss considerations, the perceived
controllability of an issue, and negative and positive emotional associations define
whether or not senior executives interpret a risk as threat or opportunity. Drawing
upon their findings, research on the interpretation of an issue as threat or opportunity
should further investigate the role of emotions in this process and in particular how the
emotionology surrounding an environmental issue is influenced by negative emotions
such as grieving. It would be fruitful to investigate, through longitudinal research, how
emotions influence the perception of an issue and the ability of an organization to
adapt to a change in its field over time.
If confirmed in further empirical research, our conceptual model has significant
implications for managerial practice. Paying attention to the emotional perturbations
that come along with disruptive change is a prerequisite to steering organizations
through a changing environment. Our model raises awareness that emotions are
important mediators of organizational reactions to change, and illustrates that they
differ over time. Managers can benefit from this insight by getting a more realistic
understanding of the feasible speed of change, and by adapting their communication
style over time, and thereby can help their organization move through to the stages of
grief more quickly than if they would ignore the grieving process. The grief literature
provides specific suggestions on bereavement counseling which can be inspirational
for managing grief on an organizational level, too, for example with regard to the
importance of mourning rituals. It should be pointed out, though, that successful
management of the grief process requires striking a fine balance. On one hand,
managers need to appreciate the emotional reactions to the loss of the old realities,
while on the other hand they should still be firm about the inevitable nature of the new
realities – otherwise, the organization might get stuck in the early stages of the grief
process and reaching acceptance could even get delayed.
In the case of policy-driven changes in the environment, this is also a lesson to be
taken into account by policymakers. They, too, can learn from our proposed model
that organizational adaptation to change takes more time than it would in a perfectly
rational world without emotions. They can, to some extent at least, adapt their
communication style to prevailing stages of grief in the affected industry to signal
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73
understanding of the emotional reactions to change. But staying firm with regard to the
irreversible nature of the change process (such as, for example, Germany’s nuclear
phase-out) is equally important to help organizations to adapt and channel their
emotions towards the acceptance stage.
While this paper provides an important early contribution towards a better and
more comprehensive understanding of corporate responses to sustainability challenges,
it clearly leaves room for further research. There are a number of industries to which
our model could be applied beyond the illustrative case of German nuclear-phase out
discussed in the previous chapter. Particularly interesting cases to study the effect of
grieving agents over institutional pressure are the oil, gas and coal industry, as they are
influenced by environmental policies and often part of emotionally heated debates.
While especially sustainability related issues like climate change are often
accompanied by emotionally heated debates (Wright & Nyberg, 2012), the proposed
model enhances the understanding of managerial responses to institutional pressures
and the role of emotions in the cognitive process in different industry settings.
Empirical testing of our proposed framework raises a number of opportunities for
methodological development, for example when it comes to operationalizing emotions
on an organizational level. The application of psychological individual-level theories
on an organizational level might further enhance our understanding of the process of
organizational decision-making and change (Bowman, 1982; Shimizu, 2007; Staw,
Sandelands, & Dutton, 1981). Measuring the evolution of negative emotions at
different management levels over time would be an important next step. This could be
facilitated by drawing on methods in psychology research, and adapting them for
application on an organization-level, for example through surveys or interviews with a
sample size which is representative for the organization. Psychologists have developed
a number of tools to measure the evolution of negative emotions, for example the
Texas Revised Inventory of Grief (TRIG; Faschingbauer, 1981), the Grief Experience
Inventory (GEI; Sanders, Mauger, & Strong, 1985), the Inventory of Traumatic Grief
(ITG; Prigerson et al., 1997), and the Hogan Grief Reaction Checklist (HGRC; Hogan,
Greenfield, & Schmidt, 2001). The latter has already been applied to management
research in a study by Shepherd, Patzelt, & Wolfe (2011) on negative emotions after
project failure and might be particularly well suited for organization-level application.
To gather data about the evolution of negative emotions in response to changes in
the organization field, a content analysis of direct and indirect communication, for
example of lobbying reports, might be a useful step, as corporate communication
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reflects the values and beliefs of an organization. Methods used by psychologists to
measure and segment grief can be adapted to segment communication into different
stages. The Inventory of Complicated Grief-Revised (Prigerson & Jacobs, 2001) might
be well suited as it segments the emotional stages and offers a scale for measurement
of grief.
A final area for further research is to investigate the link between grieving and
implications on financial performance. During the first four stages of the grief process,
organizations invest time, attention, and resources on the negative aspects of a new
environment. Organizations thereby risk a lower performance because, in line with
institutional theory, they risk continuing to invest in industries that lack legitimacy and
consequently lose competitiveness over time.
Conclusion
This conceptual paper explores how emotional aspects can help to enhance our
understanding of corporate responses to sustainability. It proposes to build on KüblerRoss’ (1969) stages-of-grief model to explain why firms take time to adapt to upheaval
in their institutional environment, as illustrated by German energy companies’
reactions to renewable energy policies, especially in the aftermath of the Fukushima
nuclear accident in 2011. While the objective of this paper is to inspire the reader to
take new avenues of research on corporate sustainability rather than to provide
definitive answers, it could provide some early evidence that energy firms did in fact
go through different stages of grief, as reflected in illustrative quotes from their chief
executives and other key industry representatives over the months that followed the
policy changes. In contrast to a pure risk-return view of the impact that the
institutional changes had on different business lines in the energy industry, for which
immediate stock market reactions served as an admittedly crude proxy, the emotional
ups and downs that are characteristic of a lengthy grief process seemed to have slowed
down corporate responses to the new realities. It will be interesting to investigate in
further research whether this effect, and the differences in how fast competing firms
went through the grief process, resulted in financial and environmental performance
differences.
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75
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Third Paper
Strategic energy policy interpretation by major energy utilities9
Elmar Friedrich†
Abstract
This paper examines the strategic interpretation of energy policies as threat or
opportunity by major energy utilities. Through an analysis of the corporate reports and
a review of investments in wind energy projects of four case companies in Germany
and Spain, this research shows that strategic policy interpretations of energy utilities
differ widely between companies, despite operating in a similar policy environment.
The study outlines that the strategic reaction of energy utilities can only partly be
steered by policies. Drawing on the strategic issue interpretation literature, this paper
theorizes about factors influencing the interpretation of a policy as threat or
opportunity by key agents within energy utilities and discusses considerations for
energy policymakers and practitioners in the industry.
Keywords: Energy utility strategy, Energy system transformation, Wind energy,
Strategic issue interpretation, Decision-making
9
An earlier version of this paper was presented at the AOM ONE Doctoral Consortium at the 2013
Academy of Management Annual Meeting, August 9-13, 2013, Lake Buena Vista, United States.
Under review at Energy Policy.
†
Institute for Economy and the Environment, University of St.Gallen, Switzerland.
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Introduction
The European energy market is transforming. Driven by changing customer
preferences, new policies, and technological opportunities, energy utilities adapt their
strategies to react to changes in their organizational field and grasp market
opportunities (Bird et al., 2002; Foxon et al., 2013; Stenzel & Frenzel, 2008;
Wüstenhagen & Bilharz, 2006). The yearly investments in renewable energies in
Europe for example rose with an annual average growth rate of 19 percent from $19.6
billion in 2004 to $79.9 billion in 2012 (UNEP, 2013). Large energy utilities play an
important role in this transition as they on the one hand belong to the largest emitters
of CO2, on the other hand they have the resources to realize large-scale renewable
energy projects like offshore wind parks or pump-storage power plants. National EU
governments support this transformation through energy policies that aim to actively
foster and steer the development and diffusion of renewable energy sources.
Interestingly, despite favorable policies and societal support, the strategic
responses of energy utilities to new energy policies differ widely (Jacobsson &
Lauber, 2006; Johnson & Jacobsson, 2001). Stenzel and Frenzel (2008) researched the
strategic responses of energy utilities in Germany, Spain, and the United Kingdom
(UK) to energy policy changes. They found that the four major German utilities
followed a rather defensive strategy and combined operated only 1 percent of the
installed capacity in the German wind market in 2005. By that time Spanish utilities
were much more proactive, invested in the wind market from an early stage onwards
and operated a large share of the Spanish wind energy sites. These studies significantly
enhanced our understanding of the importance of energy policies as steering
mechanism for corporate responses.
Beyond the findings of Stenzel and Frenzel (2008), this study indicates that
strategic responses of energy utilities differ more on a corporate rather than a national
level. This is supported by a closer look at the data of Stenzel and Frenzel (2008),
which shows for example that Iberdrola and Endesa started at similar levels in the
Spanish wind market in 2000, yet by 2005 Iberdrola had three times more installed
capacity in wind energy than Endesa and operated 34 percent of the total installed
capacity. By that time in Germany, E.ON had ten times the installed wind capacity of
RWE and 112 times of Vattenfall. Opposing strategies of utilities can also be observed
in their political actions. While Iberdrola actively endorsed policy schemes to support
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87
renewables, RWE directly and indirectly lobbied against them (Stenzel & Frenzel,
2008).
Table 3 shows that the divergence of strategies continued in the consecutive years.
By 2013, Iberdrola was still the largest operator of wind energy power plants not only
in Spain but worldwide. At the same time, Endesa almost completely left the
renewable energy industry after being acquired by Enel in 2007 and a strategic
reorientation towards fossil energy sources. We can observe a similar development at
German utilities, where E.ON had more than twice the installed capacity in wind
energy plants than RWE in 2013. By the end of 2013, Iberdrola (43%) and RWE
(29%) had significant wind energy operations in their home markets, while E.ON (0%)
was focusing on wind energy projects abroad.
Table 3: Summary of the four case companies in 2013 in income, employees, electricity
generation, total installed capacity, and total installed wind capacity
Sales, € billion
Employees
Electricity generation, billion kWh
Total capacity, MW
Wind capacity, MW
E.ON
RWE
Endesa
Iberdrola
122,000
62,239
245,200
61,090
4,727
54,070
66,341
216,700
49,000
2,307
31,203
22,995
132,427
39,562
7810
12,576
30,650
136,347
45,009
12,96411
Source: Based on annual reports
While the study of Stenzel and Frenzel (2008) has indicated how energy utilities react
to policy changes, we do not know why some corporates perceive a new policy as
opportunity and invest in a new market while others interpret it as threat and lobby
against it. The development of diverging responses to an issue within an industry has
been observed in other industries (cf. Aragón-Correa, 1998; Hart & Ahuja, 1996). One
phenomenon driving the formulation of a strategic response is the interpretation of the
issue as threat or opportunity by senior executives. Sharma (2000) analyzed the
environmental strategies of 99 Canadian oil companies in response to regulatory
10
In October 2007 Endesa was acquired by Enel and transferred parts of its renewable energy
capacities to Enel Green Energy. Prior to the transaction in 2008, Enel operated MW 3000 in wind
capacity (Iberdrola: MW 9300).
11
Including operations in Spain, USA, UK, Brazil, Mexico.
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changes and found that despite operating in a similar policy environment, companies
developed different strategic reactions depending on how key agents interpreted a
policy. The perception of an issue as threat or opportunity in turn significantly impacts
the actions of an organization (cf. Dutton & Jackson, 1987; Jackson & Dutton, 1988;
George et al., 2006). This has implications on policymakers as the perception of their
actions as threat or opportunity by senior executives can significantly influence the
resources an organization allocates towards a certain energy technology and
respectively support or hamper the achievement of policy objectives.
This study draws upon the findings of Stenzel and Frenzel (2008), provides recent data
on the evolution of the German and Spanish energy market, and reviews the
investment strategy and corporate communication of four major energy utilities in
response to energy policy changes. Based on this data the implications of the
interpretation of a policy as threat or opportunity are discussed and an analytic
framework is developed to facilitate further research in this field. The paper thereby
aims to answer three impending questions: firstly, why do the strategies of energy
utilities operating in a similar policy and market environment differ so widely,
secondly, which are the factors influencing the strategic decision-making of
organizational leaders in the energy industry, and thirdly, how can policymakers
influence the perception of a policy by senior managers and respectively the
organization’s willingness to invest.
Methodology
In response to these questions, longitudinal data over the period from 1999 to 2011
was gathered. The data is derived from two sources, firstly a review of the literature
and publically available information to summarize energy policy changes in the
respective period in Germany and Spain and secondly a content analysis of reports of
the four case companies12. The review of energy policy changes was used to identify
important policy changes along the researched timeframe. The content analysis reveals
information about how an issue is connoted and indicates if it is interpreted as threat or
opportunity (Jackson & Dutton, 1988), and sheds light on issues concerning a firm and
its strategic direction (Bowman, 1984). The analyzed data was derived from annual
12
The data used in this study was partly gathered by a master student at the University of St. Gallen
for his M.A. thesis (Vochem, 2012).
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reports, sustainability reports, financial reports, operations reviews, corporate
governance reports, and legal statements of the years 1999 until 2011, and where
possible was further validated through external references. The search was coded
around the terms “renewable energy” and “wind energy”. The results were checked
manually to exclude any false results such as legal statements. In a second step, the
results were reviewed to identify quotes referring to the interpretation of policy
changes as threat or opportunity. The case companies E.ON and RWE in Germany and
Iberdrola and Endesa in Spain were chosen as they showed diverging responses to
renewable energy policies in the study of Stenzel and Frenzel (2008). Moreover as
figure 4 illustrates, they were the largest players in their home markets and
respectively affected by national energy policy changes. The policy review is limited
to the wind energy market as all four case companies were active in this industry and
as a number of energy policies that support the diffusion of wind energy13 were
implemented during the researched timeframe. Germany and Spain are selected as
both governments implemented renewable energy policy schemes and have an energy
mix consisting of fossil, nuclear, and renewable energy sources.
Figure 4: Market shares in electricity production in Germany and Spain in 2009
Source: Vochem (2012) adapted from Berschens (2011).
13
This analysis comprises assets in wind energy projects in which the case company has a stake. The
data includes only sites in operation and excludes the ones under construction.
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Results
The wind energy strategy of Iberdrola, Endesa, RWE, and E.ON in response to
energy policy changes between 1999 and 2011 significantly differed over the years, as
illustrated in figure 5. Iberdrola and Endesa followed a very similar investment
strategy in wind energy projects until 2001. From 2002 onwards, Iberdrola
significantly increased its share in renewables – especially wind projects – and became
the leading operator of wind power plants worldwide in 2004. Endesa’s exposure in
the wind market grew at a much slower pace and was later transferred to the renewable
energy division of the parent company, ENEL green energy. E.ON invested in
renewables much earlier than RWE, yet up to 2006 the wind energy capacities of both
firms were at similarly low levels compared to the overall market development. From
2007 onwards, E.ON invested significantly more in wind energy projects and had
more than double the total installed capacity of RWE in 2013.
Figure 5: Installed capacities in new renewable energies of four case companies
14
Source: Based on annual reports.
During the researched timeframe, the terms surrounding “renewable energies” and
|wind energy” gained increasing prominence in the researched companies. The
exception is Endesa, whose reporting on renewable declines after being acquired and
14
Excluding hydropower.
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91
selling most of its renewable energy business. Figure 6 shows how often the keywords
occurred per 100 pages and how they evolved over the researched period.
Figure 6: Average number of keywords per 100 pages of corporate report15
Source: Adapted from Vochem (2012).
In the following section I describe the strategy of the four case companies in
greater detail and shed light on different corporate responses to energy policy changes
through an analysis of their corporate communication and investment volume in wind
energy projects.
E.ON
E.ON was founded in the late 1990s as a result of a merger between VEBA and
VIAG, two major regional energy utilities in Western Germany16. It operates nuclear
power plants as well as several coal- and gas-fired power plants, making it the third
largest single emitter of CO2 in Europe after Vattenfall and RWE in the EU ETS
company emissions ranking (Carbon Market Data, 2012). E.ON’s response to the
emergence of renewable energies, in particular wind energy, can be segmented in three
stages in which the company redefined its position towards renewables. Each stage is
15
For Endesa in the year 2000 and Iberdrola in the years 2008 and 2009 the structure, length, and
content of the published documents differed significantly from other reports. These documents were
therefore excluded from the analysis to allow inter- and intra-company comparability.
16
For the years prior to the foundation of E.ON, reports of VEBA and VIAG were analyzed.
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characterized by a significant difference in the way E.ON communicates on
renewables and illustrated by a rise in the number of quotes on renewables. The first
stage is from 1999 until 2001, the second from 2002 until 2006, and the third from
2007 until 2011.
The initial stage runs from 1999 to 2001 and is reflected in few citations of
renewables. With up to four pages in all corporate reports mentioning renewable and
in particular wind energy, the topic was largely ignored despite major policy changes
and a strong growth of the wind energy market during these years. No quotes on the
topic did mention any capacities owned by E.ON. The few quotes that were in these
reports were mostly negatively connoted, for example: “Under Germany’s Electricity
Feed-In Law, grid operators must provide financial support to renewable energy
sources” (VEBA 1999, p. 38), which underlines the perception of renewables as a
threat rather than an opportunity to grow. E.ON’s reactive strategy was directed
towards compliance with new policies and societal expectations and denied the
opportunities that were inherent in a changing market.
The second stage is characterized by initial changes in the corporate discourse
surrounding renewables and goes from 2002 until 2006. Driven by further energy
policy changes and broad societal support for the energy transition in Germany, denial
of change was not an option any more. The communication in corporate reports
reflects this development. Between 2002 and 2006, about 25 statements related to
renewables were on a low two-digit number of pages in the reviewed reports. When
mentioned, renewable energies and energy policy changes are still mostly connoted
negatively. In 2002, the CEO wrote that price cuts for customers could not be realized
as “competition that followed the complete liberalization of Germany’s electricity
sector [...] have largely been swallowed up by the eco tax and the German
government’s subsidy schemes for regenerative energy” (E.ON, 2002, p. 6). In 2004,
E.ON increasingly focuses on the importance of renewables for its future business and
evaluates them as a viable business rather than an environmental expense. One
objective is to “build a diversified generation portfolio – one that includes nuclear and
renewable assets” (E.ON, 2004, p. 27). Five years after the amendment of the
Renewable Energy Act, E.ON acknowledges its importance for the market. “Due in
large part to a variety of European subsidy programs, renewable energies are playing
an increasingly important role and continually increasing their share of the energy
supply” (E.ON, 2006, p. 64). Here again the negative effects of renewables are
mentioned, as wind power peaks are mentioned to threaten the stability of the grid.
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This shift in focus indicates that the perception of renewables is slowly moving
from threat to opportunity over the years. However, given the negative nature of some
of these comments, the shift towards renewables is rather reactive than proactive due
to the increasing pressure on the organization from its institutional environment. The
inconsistent reporting on renewables indicates a company’s state that is in transition,
where the previous path is questioned and initial steps towards a new path are taken.
During the final stage from 2007 onwards, E.ON accepts the policy changes,
which is expressed in an almost exclusively neutral or positive reporting on
renewables and the respective policy environment. Between 2007 and 2011, 70 to 80
quotes on an average of 45 pages refer to renewables. The company reports on its
investments especially in the wind market and acquisitions of competitors in this field,
which indicates a significant strategic shift towards a new renewable energy path.
E.ON acquired two competitors abroad to “increase E.ON’s wind power capacity to
around 900 megawatts, making E.ON one of the world’s largest wind-farm operators”
(E.ON, 2007, p. 23).
From 2008 onwards, E.ON states that new energy subsidies are important as they
create investment opportunities for renewables. In 2010, E.ON launches its new
strategy “Cleaner and better energy” in which an increase in renewable assets is a
priority of the company. The CEO wrote: “We intend to further expand our
renewables capacity and integrate it into a system of smart grids and storage devices”
(E.ON, 2010, p. 3). To explore the opportunities of a renewable energy-based business
model, E.ON also significantly adjusts its position on EU energy policies. They call
for a “uniform EU law to support R[enewable] E[nergies] and emission trading”
(E.ON, 2010, p. 59).
This change in perception of policy-driven changes from threat to opportunity is
not only reflected in E.ON’s communication and investments in the market but also its
political activities. E.ON, among other major energy utilities, initially directly and
indirectly lobbied for the abolishment of new regulations, which from 2005 onwards
shifted towards changing the policy design (Stenzel & Frenzel, 2008; Wüstenhagen &
Bilharz, 2006). By 2011, E.ON had 4035 MW installed capacity in wind energy
projects and planned to significantly expand its activities in the renewable energy
market. A significant share of these investments was abroad as the market in Germany
was competitive and many good wind sites already taken by smaller players, which is
one example of the high opportunity costs as a result of a late entry in the market.
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RWE
RWE was established in 2000 after a merger with VEW, another major energy
utility, in 200017. In comparison to E.ON, RWE’s strategic response, reflected in its
investments in and communication on renewable energies, was different. From the
start, RWE reacted more negatively on policy and market changes and expressed this
notion in its corporate communication. Similar to E.ON, the company’s interpretation
of renewables evolved with time and rising institutional pressure to change. The
company’s response is again structured in three stages, which run from 1999 to 2005,
2006 to 2008, and 2009 to 2011. In contrast to E.ON, RWE continuously emphasized
on the negative aspects of the energy transition and invested significantly less in
renewables. It took RWE’s management much longer to interpret renewables as a
viable investment option and legitimate part of the energy landscape.
RWE largely denied renewable energies in its corporate communication and
investment strategies until the year 2000. Neither wind nor other renewable energies
were mentioned in any report, despite significant policy changes and market growth.
In the following years, RWE strongly opposed the new legislation and proactively
lobbied against the respective changes in the energy market. Renewables were
perceived as a threat, which is illustrated in a number of quotes in the company’s
reports. Right after the Renewable Energy Act was adopted in 2000, the CEO-letter in
the annual report states “The laws recently enacted to promote renewable energies and
cogeneration have given rise to fresh burdens. [...] We consider the underlying
approach misguided” (RWE, 1999, p. 7). Despite the negative evaluation of
renewables, RWE reports on some initial investments in renewables, yet with very
limited size and scope. The reporting on renewables continues to be at a very low level
until 2005 with about 15 quotes per year. RWE also continues criticizing the German
energy policies, for example changes to the Renewable Energy Act in 2005 (RWE,
2005, p. 56). Despite this assessment, RWE kept on investing in renewables, yet at a
very low level. As noted by Stenzel and Frenzel (2008), RWE operated only 12 MW
in installed wind capacity by 2005 (E.ON 112 MW).
17
One effect of the merger was the existence of two different company reports for the year 2000,
which were both reviewed.
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Between 2006 and 2008, renewables gained more prominence in RWE’s
communication. In this period RWE’s annual report contains more than 60 quotes
referring to wind or renewable energy on about 30 percent of its pages. This stage is
illustrated in the company’s plea for a combination of renewable and conventional
energy sources. The CEO letter notes “security of supply cannot be guaranteed over
future decades without using coal and nuclear power” (RWE, 2006, p. 6). This notion
further evolves in the next year, when RWE states “In the future, energy from
renewables – primarily wind and water – will be of central significance in ensuring a
sustainable supply of energy” (RWE, 2007, p. 12). Wind is often described as the most
promising new renewable energy due to its potential and the maturity of the industry.
Yet despite a mostly positive discourse around renewables, corporate communication
still contains several negative comments on renewables and energy policy, for
example “burdens resulting from the German Renewable Energy Act became more
severe” (RWE, 2007, p. 48), or that “renewables create new dependencies” (RWE,
2008, p. 25). This stage is characterized by a strong negative opinion on energy policy
changes and low investments in renewables.
In the consecutive years, the ambiguity surrounding the strategic course of the
company and criticism of parts of the renewable energy legislation continues. The
company bargains over its future position and business model and still partly lobbies
against renewable energy legislation, yet more nuanced than in previous years. RWE
accepts wind energy as a core element of the future energy landscape and tries to
strategically change the company. The company still stresses the importance of coal
and nuclear energy as vital elements of the German energy mix as stable and
predictable energy sources. Yet, interestingly and in line with policy targets, these
industries are described as necessity to create the cash flow needed to finance
renewable energy projects and the transition of the energy system (RWE, 2009, p. 25).
The focus on renewables continues in 2011, where half of the strategy chapter is
designated to renewables and in particular wind energy. “At the center of our growth
strategy is the expansion of electricity generation from renewables. We intend to
dedicate approximately €4 billion to this in the period from 2012 to 2014. Nearly half
of these funds are earmarked for offshore wind farms. By 2020, the share of our
electricity production capacity accounted for by renewable energy should have risen to
at least 20%. At the end of 2011, it totaled 8%” (RWE, 2011, p. 97). The reports also
outline continuous investments in conventional energy projects and stress the
importance of coal, gas, and nuclear to guarantee baseload power and grid stability.
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The top management publically admits the challenge that these changes present to the
company. “Never before has RWE adapted its organization as quickly as it does today.
But the energy markets have never changed as rapidly as they do today, either” (RWE,
2009, p. 18).
Endesa
Endesa is the largest energy producer in Spain with a market share of 33 percent in
2011. The company invested in renewables – especially wind power – from an early
stage onwards. It was the first to install a wind turbine in Spain and already in 1998
had a subsidiary called “Made” that planned, constructed, and operated wind plants in
Spain and internationally” (Endesa, 1998, p. 56). However, similar to RWE and E.ON,
the company’s engagement in renewables developed over the years along changes in
the firm’s institutional environment. The different policy changes in Spain are largely
supported and over the years, more resources are allocated towards renewable energy
projects. This process is reflected in a rising number of connotations on this topic in
corporate reports between 1999 and 2011.
Endesa continuously communicated about renewable energies in all analyzed reports.
In none of these reports, one negative connotation of renewables or renewable energy
policies was observed. After the first significant policy changes in Spain, Endesa
founded the new business unit “Cogeneration and Renewables” in 1998, which aimed
to invest in the new market and diversify the company’s strategic portfolio (Endesa,
1998, p. 23). Wind energy is seen as “now becoming important in the electricity
generation system” (Endesa, 2002, p. 69). The number of words referring to
renewables slowly rises between 1999 and 2002 at about 20 quotes per report and
year. In each report, one sub-chapter with two pages is dedicated to renewables. In the
consecutive years, the reporting of Endesa on renewables continues to gain
prominence in its corporate communication. In 2003 Endesa announces its plan to
allocate about a third of its investments to renewable energy projects for the next five
years. “Most of the total installed capacity will relate to wind power, a subsector in
which the company has a consolidated position” (Endesa, 2003, p. 119).
The positive reporting on renewables further increases in the period between the years
2005 and 2008. However, while expanding its activities internationally, Endesa lost
part of its share in the Spanish wind market, which was down to 15 percent by 2005 at
“a total capacity of 1131 MW in service and 412 MW under construction” (Endesa,
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2005, p. 77). The strategic shift towards renewables continues in 2006. “Endesa is
especially focused on growth in renewable energies, which will have an increasing
weight in its generation mix” (Endesa, 2006, p. 80). As in previous years, Endesa also
describes policy changes on national and EU level and the implications on its business.
This communication on energy policy is in a neutral or positive tone. In 2007, the
strategic focus on renewables gains further prominence in Endesa’s reporting. In their
annual letter to all stakeholders, the CEO states that Endesa’s future should be “based
on an energy mix with a greater focus on renewables, which will result in a drastic cut
in CO2 emissions” (Endesa, 2007, p. 9).
CO2 emissions and policy changes on EU level in this regard are explained in greater
detail and the implications and targets of Endesa in the field mentioned. The company
also reports on the steep increase in renewable energy production and an additional
capacity of 871 MW in 2007.
In 2007, Endesa also reported on first effects of its acquisition by Enel, an Italian
based energy utility, and Acciona, a Spanish construction firm with operations in the
energy market. Assets abroad, including renewable energy sites, are sold to E.ON,
which reflects E.ON’s strategy to further focus on renewables during this time. Large
parts of the annual report of the following year 2008 explain the transactions between
the companies in greater detail. Interestingly, after the acquisition of the company,
renewable energies are not mentioned in the section on Endesa’s strategy any more.
Given the increased focus on this field in previous years, this marks a major shift in
the company’s strategic direction. Respectively, the reports of 2010 and 2011 have a
significantly lower number of references to renewable energies than previous years.
Renewables became a minor topic again, however, the company still reports on
investments in wind, solar, hydro, tidal, and biomass projects.
Iberdrola
In 1998, Iberdrola was the second largest energy utility in the Spanish energy market
after Endesa. The company was structured as many other major players in the industry
and operated fossil as well as nuclear energy power plants and the grid in parts of the
country before focusing its strategy on renewable energies. Iberdrola invested in
renewables from a comparably early stage onwards and already in 1998 operated 364
MW in wind energy capacity as well as 88 MW in hydroelectric mini-stations. In
comparison, none of the German energy utilities had any significant investments in
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renewables at the time. Iberdrola consequently pursued a renewable energy strategy
between the analyzed periods from 1998 to 201118. During this time, the company
increasingly invested in renewables and reported on its achievements and renewable
energy policies. It became the world’s largest operator of wind energy farms in 2004.
The content analysis shows that the coverage of renewable energies significantly rose
during the observed period.
Between 1998 and 2001, renewables and in particular wind energy were mentioned ten
times. During this period, renewables were still a side topic, yet reported on in a
positive tone. |One report states, “one interesting new development (...) was the
incorporation of Iberenova, which was set up to develop electricity power stations
using renewable energy source” (Iberdrola, 1998, p. 33). In the following years,
Iberdrola constantly expands its operations in the field and doubles its installed
capacity in wind energy projects every year with 479 MW in 1999 and 1,157 MW in
2000. The chairman noted “with wind power production now expected to produce
more than 7,500 GWh, we are fully confident of further consolidating our present
unassailable lead in the renewable energy field” (Iberdrola, 2000, p. 7). From 2001
onwards, Iberdrola strives to become the world’s leading operator of renewable
energy, with a distinct focus on wind energy power generation. While RWE in
Germany comments on the negative aspects of the new policies for its business very
aggressively, Iberdrola strives to achieve “a position to make the most of the
opportunities for profitable growth inherent in this type of energy, particularly as a
consequence of the European Directive and Spanish legislation concerning the use of
renewables in electricity production, and the commitments deriving from the Kyoto
Protocol” (Iberdrola, 2004, p. 26). In line with Endesa, Iberdrola acknowledges the
importance of renewable energies to prevent climate change and the role of energy
utilities in this regard, which differs from reactions of E.ON and especially RWE.
“The company’s strategy to grow in the renewable energy industry is in line with its
commitment to the environment and sustainable development, and also complies to the
Kyoto Protocol and the EU Emissions Trading Directive” (Iberdrola, 2004, p. 78).
Internationally the company has operations in the United States, Canada, Brazil, and
18
Iberdrola used different types of reports with different structures and designs to report on its
activities. Therefore annual reports, sustainability reports, and legal statements were reviewed. The
reports of the years 2008 and 2009 were excluded from the content analysis as the structure and
content made it incomparable with former and later reports.
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several European countries. In this regard the importance of subsidies is mentioned a
number of times. “Supporting frameworks for renewable energy in the countries in
which Iberdrola is present involve a boost for the company’s wind power development
plan” (Iberdrola, 2007, p. 118). Iberdrola not only changed the way it produces energy
but also innovates its product portfolio. Since 2003 it offers electricity from renewable
energy sources for a premium to its customers. The company also states the positive
effects of renewables on its financial results and its effects on the company’s position
in the market. “Iberdrola has been one step ahead of the trends in the industry”
(Iberdrola, 2005, p. 3).
Regarding the development of new renewable energy policies, Iberdrola supports
government’s “promotion of renewable energy and energy efficiency” (Iberdrola,
2007, p. 180), and “has become one of the major driving forces behind such change”
(Iberdrola, 2006, p. 56). From 2007 onwards, Iberdrola moves further towards
becoming a global renewable energy utility. Next to its organic growth the company
acquired further stakes of other companies. In 2007 it bought Scottish Power with
renewable energy assets in the United States and United Kingdom and founded a new
business unit to acquire companies that develop renewable energy innovations.
Iberdrola financed these investments with an initial public offering of its renewable
energy division in 2007.
In the following years, Iberdrola almost exclusively communicated on its renewable
energy operations. In 2010, 47 quotes on 52 pages and in 2011 56 quotes on 47 pages
refer to renewables. The company announced to invest €5.3 billion in renewable
energy projects and further €5.6 billion into its grids. Significant investments are
planned for offshore wind parks, which according to the company’s annual reports
marked a “second revolution in renewable energies” (Iberdrola, 2007, p. 32). From
2011 onwards, renewables have the largest installed capacity within Iberdrola’s energy
portfolio with 13,690 MW, representing 30.5 percent (Iberdrola, 2011, p. 18).
Discussion
Can policymakers influence and steer corporate investments in a certain
technology and if so, how? The question gained much attention by academics and is
especially relevant for energy policymakers as the market is significantly influenced
by their decisions. The implementation of renewable energy subsidy schemes created a
comparably predictable and economically interesting investment environment in many
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European countries. In response, some large energy utilities lobbied against the change
while others significantly invested in renewables. The phenomenon of diverging
strategic responses to regulatory change is not unique for the European energy
industry and has been observed in different contexts and markets. The reactions to
regulatory change of the U.S. chemical industry (Hoffman, 1997), Canadian oil
industry (Sharma, 2000), or oil refining industry (Logsdon, 1985) are just some
examples. The perception of an issue as threat restricts information processing and
constricts control (Staw et al., 1981). The result is path dependent behavior, where
individuals pursue entrenched routines and practices. On the contrary, the perception
of an issue like a new energy policy as opportunity allows organizations and
individuals to go beyond their routines and explore new paths (Chattopadhyay, et al.,
2001; George et al., 2006). Whether an individual or organization evaluates an issue as
threat or opportunity depends on three factors: gain and loss considerations, the
perceived controllability of an issue, and perceptual and emotional aspects (Dutton &
Jackson, 1987; Jackson & Dutton, 1988; Sharma, 2000). As reflected in figure 7, these
factors influence the perception of a major issue like a new energy policy, which in
turn corresponds in a proactive or defensive organizational response (Dutton &
Jackson, 1987; Jackson & Dutton, 1988; Sharma, 2000; Weick & Kiesler, 1979).
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Negative or
positive
emotional
associations
Gain and loss
considerations
Perception of a
policy as
threat or
opportunity
Strategic
reaction
Perceived
controllability
Figure 7: Factors influencing the perception of a policy as threat or opportunity
Source: Own illustration based on Sharma, Pablo, and Vredenburg (1999).
Translated into an energy policy context, the interpretation of a new policy or
policy change by key agents within the energy industry impacts their likelihood to
support or hamper the achievement of the policy goals. Energy utilities could for
example invest in lobbying against a renewable energy policy rather than using their
resources to invest in renewable energy projects, as observed in the German energy
market (Stenzel & Frenzel, 2008). Consecutively I discuss how the data about the
strategic change of the four case companies along the researched timeframe supports
the proposed model in figure 7.
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Negative or Positive Emotional Associations
Negative and positive emotional associations are a result of cognitive appraisals in
response to a significant event (Lazarus, 1991; Scherer, 2001). An event is emotionally
assessed based on the individual’s personal values, goals, or social norms (Scherer,
2000). Respectively, the perception of new policies as threat or as opportunity depends
on the individual leader’s values, experience, and social and organizational context. A
major event that is negatively perceived can lead to a strong emotional response. A
new policy that determines the end of a certain industry, for example the end of
subsidies for the coal industry or the phase-out of nuclear, can trigger denial, anger,
bargaining, and depression in a leader similar to the stages of grief an individual goes
through after a major loss (cf. Kübler-Ross, 1969; Friedrich & Wüstenhagen, 2014).
To gather data about emotional associations from corporate reports is challenging
because the nature of corporate documents is fact oriented and rational. Other sources
like interviews can generate anecdotal evidence about emotional associations. In an
interview in 2012, RWE’s CEO stated “we are a company that has to fight for its
future. The energy transition made it clear for the first time that it works without us.
Many employees are scared and afraid. They ask me: Do we still have a company in
10 years? Or are we gone forever?” (Höfler, 2012, p. 69). Such quote indicates that
many RWE employees have negative emotional associations with renewable energy
policies and the respective change of their company. Research of Sharma et al. (1999)
showed that individuals from organizations that exhibit proactive environmental
strategies attended to information about the gains that could be made from a variety of
initiatives and looked for ways to build these into their strategic and operational
decision-making processes. Someone from outside the energy industry with
experience on sustainability-driven policy changes might for example have a more
unbiased view on new energy policies and be more likely to interpret renewables as an
opportunity than someone who made his/her career in fossil or nuclear energy. This
study calls for further research investigating the effects of a leader’s background,
emotions, capabilities, and the organizational context on his/her perception of a policy.
Gain and Loss Considerations
E.ON’s communication and investment strategy outlines how gain and loss
considerations affected their investment strategy. In the year 2000, E.ON discussed the
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implications of recent energy policy changes under “external risks” (VEBA, 2000, p.
36). Respectively the company did not connect any gain considerations to renewables
and no investments were made during this time. This changes with increasing public
and political pressure, which is reflected in the corporate discourse. From 2007
onwards E.ON started connecting renewable energy policies with gain considerations,
which is exemplified in the statement “Renewables like wind and hydro are already
important ingredients of our energy mix. They’ll be indispensable in the future
because they combine climate protection and fuel independence” (E.ON, 2008, p. 41).
This shift is reflected in opportunistic behavior and increasing investments in wind
energy projects. Respectively, it is important to develop organizational and individual
targets that are connected to a new policy or technology to drive the organization
towards exploring the opportunities connected to change. Sharma (2000) found that to
drive innovation in an industry and limit the risk of becoming path dependent, it is
important to include long-term environmental and innovation criteria along with
economic criteria in the performance evaluation of key agents. Further research could
analyze how organizational and individual targets in the four case companies were
connected towards exploring opportunities of new policies and technologies.
Perceived Controllability
The third factor influencing the interpretation of an issue is perceived control.
Jackson and Dutton (1988) summarized that feelings of control seem to derive from
perceived autonomy about how to respond and freedom to choose whether to respond
to an issue, access to resources or means for resolving the issue, and feelings of
personal competence. The Spanish utilities Iberdrola and Endesa were among the first
to operate wind power plants in their country and invested in renewables from an early
stage onwards, indicating that the leadership team had a feeling of high personal
competence when new policies supporting renewables were implemented. Besides,
their corporate reports indicate resources and means for resolving the issue as their
organizations were in a comparably solid financial position and had experienced staff
in their renewable energy division and consulting unit to operationalize new market
opportunities. In Germany, RWE and E.ON had no capacities in renewables when the
Electricity Feed-In Law was adopted. Respectively, it can be argued that the
leadership team had the feeling of low personal competence to explore the renewable
energy technologies and a lack of internal resources to successfully work in the new
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market. E.ON established these resources early through investments and acquisitions
and respectively moved towards exploring renewable energy market opportunities
earlier and faster than RWE. E.ON’s strategy underlines the importance to explore
new technologies and markets in the organizational field from an early stage onwards
to gain a first mover advantage (Miles et al., 1978).
Limitations
The data gathered in this study only partly contributes towards answering the
question, which factors influenced the strategic interpretation of a policy in the energy
industry. Especially the unavailability of an objective measure of the factor emotional
associations is a limitation of this study. However, the data provides some initial
anecdotal evidence about gain and loss considerations and perceived control. I call for
further studies researching the factors and determinants influencing the interpretation
of energy policies by major energy utilities as threat or opportunity.
A content analysis of corporate reports is a valid method to gain insights about
firm strategies, yet, given the nature of such reports, further methods should be used to
shed light on strategic change and its underlying drivers in the energy industry.
Especially quantitative methods could further test the proposed analytic framework in
figure 7.
Each of the four case companies are active in international markets, therefore
national energy policy changes have a limited effect on the firm’s strategy. However,
many of the analyzed reports included direct references to policy changes in their
home country, which indicates the significance of these changes.
This study is focusing on the issue interpretation literature to explain the
development of diverging strategic policy responses. Other perspectives, such as new
institutional or agency theory, could also explain the phenomenon and further enhance
our knowledge about the issue.
Conclusion and Policy Implications
In Germany, E.ON and RWE responded with a defensive strategy and lobbied
against the new institutions, which is reflected in their corporate communication and in
line with previous studies (Stenzel & Frenzel, 2008; Wüstenhagen & Bilharz, 2006). A
closer look at the data reveals that E.ON argued less aggressive than RWE and
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invested significantly more in renewable energy projects during the researched
timeframe. At first, both companies denied the opportunities of the new market and
responded passively to renewables. The perception of an issue as a threat is illustrated
by a minimal response to regulatory demands by denying responsibility and adjusting
only those parts of a business that are directly affected by a new policy (Dutton &
Dukerich, 1991; Sharma et al., 1999). With time and increasing societal and
governmental support for the energy transition, both companies moved towards
interpreting renewables and the respective policy changes less as a threat and more as
an opportunity. However, E.ON was more proactive and positive during each stage,
while RWE kept stressing on the negative implications of the Renewable Energy Act.
In Spain, the evolution of the response to energy policy changes of the two major
energy utilities Endesa and Iberdrola was opposite to the reaction of RWE and E.ON.
Both utilities supported the new legislation and invested in renewables from an early
stage onwards. Yet, Iberdrola expressed a more positive connotation and invested
significantly more in renewable energy projects. Iberdrola transformed towards
becoming a major renewable energy utility. While Endesa sold most of its renewable
energy capacities to E.ON and Enel after being acquired in 2007, Iberdrola acquired
several competitors and became the largest operator of renewable energies by 2004.
Very different to E.ON and especially RWE, Endesa and especially Iberdrola actively
supported new energy policies on a national and European level. By 2011, both
companies had very different strategies, one working towards manifesting its position
as leading global operator of renewable energies, the other reoriented towards
conventional energy sources with renewables only being a niche business.
This research has important implications for the industry. If a new institutional
landscape is about to form, it is important for an organization to have a leadership
team that explores and grasp the opportunities connected to the change. If a company
uses its resources to fight the inevitable, it might endure high opportunity costs. The
example of RWE’s strategic response to renewable energies illustrates the importance
of the interpretation of an issue and its effects on wellbeing of the company. Between
2002 and 2012, the S&P credit rating of RWE fell from AA- to BBB+, the company
had to lay of thousands of employees, and the net debt rose to more than €20 billion in
2011. The findings indicate that it is vital for an organization to have a leadership team
that interprets an issue as unbiased as possible especially during times of significant
changes in the organizational field. I call for further research to identify how the
professional background of key agents influences the perception of a new policy.
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Moreover, a qualitative study focusing on the perception of key agents of policy
changes could shed light on the underlying drivers behind the interpretation of an
issue. The findings of Stenzel and Frenzel (2008) and this research suggest that the
energy industry is an interesting case for such researches. Consecutively I outline the
implications of this work for the development of effective energy policies.
One objective of energy policies is to influence and steer a market or industry
towards a predefined direction. In the energy industry, many European governments
aim to support the diffusion of renewable energy sources to reduce environmental
hazards connected to conventional energy sources, become more independent from
definite and often foreign resources, and drive innovation. While some policies aim to
support individuals to implement renewables on their premises, subsidy schemes for
large-scale projects like wind energy farms require institutional investments. Major
energy utilities often have the financial means, market experience, and management
skills to invest in such large-scale projects. The analysis of the Spanish wind energy
market outlines that subsidy schemes and a stable policy environment can stimulate
major players in the industry to allocate significant resources towards a new
technology, thereby contributing to the achievement of the policy objectives. These
findings are in line with previous studies (cf. Stenzel & Frenzel, 2008; Wüstenhagen &
Bilharz, 2006). However, this study also shows that the creation of favorable policies
for a new technology does not automatically lead major players to invest. The
literature on strategic issue interpretation shows that the actions an organization takes
in response to a new policy largely depend on its interpretation by key agents as threat
or opportunity. The underlying cognitive processes connected to the interpretation of
an issue depend on three factors: positive or negative emotional associations, gain and
loss considerations, and the perceived controllability of an issue. While these factors
partly depend on an individual’s values, capabilities, and the organizational and
societal context, I argue that policymakers have the possibility to influence these
factors. Policymakers need to be aware that their decisions can trigger strong
emotional reactions within the industry they target, which in turn can influence the
industry’s willingness to support a policy. More positive emotional associations can be
achieved by adapting the communication style towards key decision-makers.
Policymakers should stress on the opportunities connected to a new policy for
established organizations in the industry. Moreover, by stressing the irreversible
direction towards a sustainable energy system, policymakers can create certainty and a
predictable investment environment for the industry. To increase the perceived
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controllability over an issue, policymakers can outline what resources and capabilities
are required to sustain in the new business environment. While this goes beyond the
usual scope of policymakers, it could improve an individual’s perception of a policy as
they feel that their concerns are being considered, which in turn gives them a greater
feeling control. Policymakers could outline potential opportunities for the industry and
the irreversible nature of the policy to increase investment certainty, one of the major
factors for institutional investors (Bürer & Wüstenhagen, 2009). Thereby, energy
utilities can develop renewable energy capabilities and their leaders a greater feeling
of control. This could change their perception of an issue and lead to a more
opportunity driven organizational response.
However, when reviewing the development of the German wind energy market, it
becomes obvious that policy objectives for an industry can be achieved without the
participation of major industry players. Due to the late and hesitant strategic
redirection towards renewable and especially wind energy sources, the major two
German energy utilities RWE and E.ON only operated a fraction of the German wind
market by 2011. So if policy targets are achieved, why should policymakers care about
policy support by major players in the industry? I argue that investments of major
players in an industry can accelerate the achievement of policy targets. The case of
Iberdrola shows that major utilities can drive a change in the energy system.
Moreover, such a strategic redirection of major industry players can lead to positive
side effects like job creation or investments abroad that go beyond the scope of the
policy objectives. Besides, the case of RWE shows that established organizations
within an industry that interpret a new policy as threat do not just deny the change but
actively lobby against it, which complicates the work of policymakers and potentially
threatens the political and societal legitimacy of their actions. A strategic
misinterpretation of a key issue in the industry can threaten the existence of an
organization. Major players in an industry are important taxpayers and employers and
their wellbeing is in the interest of many. Respectively, I argue that policymakers
should engage in a dialogue with key industry agents and support them in preparing
and adapting to a new institutional environment.
Acknowledgements
A special thanks belongs to the Nagelschneider Foundation – Researching
Renewable Energies, which generously funded this research project. I would also like
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to acknowledge the assistance of Johannes Vochem. The empirical part of this paper
builds on the data he gathered for his master thesis at the University of St.Gallen.
Moreover I would like to thank the AOM ONE community for providing feedback on
an earlier version of this study during the ONE Doctoral Consortium at the 2013
Academy of Management Annual Meeting.
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Curriculum Vitae
Curriculum Vitae
Elmar Friedrich
German, born 21.09.1983
Education
01/2010 – 09/2014
University of St.Gallen (HSG), Good Energies Chair for
Management of Renewable Energies, St. Gallen, Switzerland
Ph.D. Program in Management (PMA)
Concentration Strategy & Management
Ph.D. Thesis: The Influence of Emotions on Strategic DecisionMaking and Issue Interpretation in the Energy Industry, Advisors:
Prof. Dr. Rolf Wüstenhagen, Prof. Dr. Markus Kreutzer
01/2013 – 12/2013
The University of Sydney, Sydney, Australia
Visiting Scholar and CEMS program assistant
09/2008 – 08/2009
UCD Michael Smurfit School of Business, Dublin, Ireland
Master in International Management (M.Sc.) & CEMS Master’s in
International Management (CEMS MIM)
02/2009 – 06/2009
University of St.Gallen (HSG), St. Gallen, Switzerland
CEMS Exchange Semester
09/2004 – 08/2008
Hanze University Groningen, Groningen, The Netherlands
Bachelor (B.A.) in International Business and Management Studies
09/2006 – 01/2007
Shih Chien University, Taipei, Taiwan
Exchange Semester
Practical experience
09/2010 – 08/2014
University of St.Gallen (HSG), St. Gallen, Switzerland
Program Manager HSG CEMS Master, 17.5-70%
01/2011 – 12/2013
Stiftung Nagelschneider – Researching Renewable Energies
Research scholar, 80%
02/2013 – 11/2013
The University of Sydney, Sydney, Australia
CEMS Program Assistant, 20%
09/2009 – 12/2012
Good Energies Chair for Management of Renewable Energies,
University of St.Gallen (HSG), St. Gallen, Switzerland
Research Assistant, 15 - 70%
01/2009 – 03/2009
UBS AG Investment Banking, Zürich, Switzerland
Intern at US Equity Sales department, 100%
02/2007 – 07/2007
BMW AG, Beijing, China
Intern at BMW China In-house Consulting, 100%
Curriculum Vitae
115
Extracurricular Activities
01/2014 – 01/2017
CEMS Alumni Association, Global
Executive Member
01/2013 – 12/2013
Launch of CEMS Alumni Organization Australia, Sydney,
Australia
Founder and President
03/2011 – 03/2012
DocNet, The Doctoral Network at the University St. Gallen, St.
Gallen, Switzerland
Executive Member
09/2008 – 09/2009
CEMS Club Ireland, UCD Michael Smurfit School of Business,
Dublin, Ireland
President
Languages
German
English
Spanish
Native
Proficient, C2
Intermediary, B2